Labour could lose the next General Election unless Tony Blair returns to "core values," some members of his own party have warned.
Tony Blair's MPs have urged him to return to traditional policies
A group of 35 MPs joined union leaders and party activists for a Socialist Campaign Group conference to set out the alternative policies they believe the party must adopt to win the next General Election.
The group's chairman, Labour MP John McDonnell, said the "New Labour project has failed," adding that the party's policies needed to gain popular support.
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"If we don't produce a programme which has popular support by traditional Labour supporters, we run the risk of allowing the Tories to come back at the next General Election," he said.
"Tony Blair himself admitted that his message was failing and that we need to get back to Labour core values.
"It is not a matter of how the message is put across, it is the message itself."
Conference delegates met in London on Saturday to put forward an alternative "New Left project", which they claimed represented the majority of grass roots party members.
The group's policy demands include public investment in the public services rather than privatisation, increasing the basic state pension and restoring the link with earnings, scrapping tuition fees and restoring student grants, and promoting employment
Those on the left of the party say there is an increasing sense of distrust and disillusionment among many supporters.
The New Left project is an attempt to reactivate and reclaim the party, they say.
The New Labour project has failed
John McDonnell, MP
Socialist Campaign Group
The group's honorary president Tony Benn and MPs Diane Abbott, Jeremy Corbyn and George Galloway were among the speakers at the conference.
Veteran politician Mr Benn told BBC News 24 he had found people of all political opinions to be disillusioned with government policies on pensions, student fees and the war with Iraq.
"Increasingly I find people want to get policies relevant for the present and not stick with New Labour, which was a new political party set up by the prime minister," he said.
"I'm not a member of New Labour and neither are most of the people in the Labour party."
But Transport minister Tony McNulty said the conference delegates were ignoring Labour's electoral successes.
"What some of these ultra-left groups want to do is to drag the Labour Party back to a time when it was out of touch with real people and out of office for a generation.
"We are about to have the longest period of Labour government ever. You don't get that by going back to the sort of politics that led to our longest period in opposition."
Earlier, Mr McDonnell had told the BBC there was disenchantment about some of the government's policies, particularly foundation hospitals which were seen as the "first step towards privatisation".
Former health secretary Frank Dobson agreed, saying: "The more we delve into the proposals for foundation hospitals and the more the government comes up with their explanations, the more doubts people have about the policy itself."
Tony Benn is optimistic about the group's prospects
He said that aiming for structural change gave the false impression that the health service was incapable of improving in its current state.
Mr Dobson, who is not involved in the New Left project, told the BBC Labour's problems were "recoverable but only if we are pursuing practical, practicable, sensible policies which chime with the views with the people we expect to do the work."
The conference comes after Tony Blair sought to end the divisions in his party over the Iraq war by focusing his sights on public services on Friday.
In a speech in Liverpool, the prime minister stressed his government's commitment to reform the public services, and said he was "up for the fight" to win a third term in power.
But Transport and General Workers' Union (TGWU) general secretary-elect Tony Woodley told delegates: "This is not about disloyalty, it is recognising that working men and women are disillusioned and disappointed with the way the party is going."
Kevin Curran of the GMB criticised the prime minister for leading what he said was a "centre right government".