Labour and the Liberal Democrats have taken a major new step towards a full-blown political alliance.

Chief Political Correspondent John Sergeant: "A very significant statement"

In a joint statement, Tony Blair and Liberal Democrat leader Paddy Ashdown have announced their existing, informal pact will be deepened to cover any area where the two parties agree.

And they make it plain their over-riding aim is to consign the Conservatives to the political sidelines.

Top of the agenda for co-operation is Europe, where the two parties support Britain's eventual entry into the single currency.

The euro is top of the agenda

The move will spark serious concern amongst some Labour and Liberal Democrat members who believe the two parties should remain completely independent.

But in their statement, the leaders declare: "Our aims are simply stated - to work together in building a modern Britain. To create a new, more constructive and more rational culture for our national politics.

The BBC's Paul Rowley: "The government want to challenge the tribalism of politics"

"To ensure the ascendancy of progressive politics in Britain, against a Conservative party which seems determined to travel further and further to the right. And the continue the re-shaping of British politics for the next century."

The move comes after the Jenkins report on changing Britain's voting system backed a system of PR, which has been a central Liberal Democrat demand for years.

Lord Jenkins' report could have divided the parties but appears to have brought them closer

Mr Blair had originally pledged a referendum on the issue before the next election, but has recently signalled that may not be possible until after the poll.

Sources insisted the strengthening of the relationship between the two parties was not part of any deal to bolster Mr Ashdown's position in the event of him failing to win a referendum before the election.

But in a written Commons answer, Mr Blair sounded his most positive note yet on electoral reform.

He repeated his pledge to hold a referendum before the election if at all possible, but said, if it became impractical before the poll, it would happen "at the earliest moment it is appropriate to do so".

That should help secure Mr Ashdown's leadership position without actually committing the government to anything.

Critics immediately claimed it was another move towards a full scale alliance which could see Mr Ashdown and other senior Liberal Democrats becoming members of the cabinet.

Political Editor Robin Oakley: "This deal shows that Labour are playing a long game"

There is no doubt that Mr Blair would like to see a lasting pact between the two parties in a bid to ensure the Tories were never again elected to power.

And the joint statement, signed by both men, is the clearest sign yet that their alliance is becoming more significant.

The cabinet "enforcer" turns alliance developer

Cabinet "enforcer" Jack Cunningham and deputy Liberal Democrat leader Alan Beith will work together to develop the alliance, currently based on a joint consultative committee which has been looking only at constitutional reform.

According to the leaders: "We believe it is now appropriate to widen the work of the JCC. This will be an important step in challenging the destructive tribalism that can afflict British politics even where parties find themselves in agreement.

"Of course we are two sovereign and independent parties working together where we agree and opposing each other where we do not.

"We are confident this step forward can deepen co-operation and result in widening support for the kind of progressive change which we wish to see and to which we believe the British people are strongly committed."

No-one wants to talk about a formal alliance because of the bad memories of the Lib-Dem pact in the 1970s which ended in bitterness and recriminations.