Labour's defeat in the Brent East by-election is a signal that ministers have failed to listen and communicate with voters, the party's chairman has admitted.
McCartney: 'Focus needs to be on the domestic agenda'
Ian McCartney said he was "very disappointed" that Labour had lost its first by-election in 15 years, adding that the "backdrop of the controversy over Iraq" had not helped.
But Conservative chairman Theresa May said the result, which saw her party trail in third place, marked a "devastating blow" for Labour in one of its heartlands".
The Liberal Democrats snatched one of Labour's safest seats with a swing of 29% in the Thursday night contest.
Mr McCartney said: "It is the first time since 1988 that we have lost an election.
"It's been unprecedented in modern times, so I am very disappointed, particularly as we had an excellent candidate in Robert Evans and an excellent campaign.
"The backdrop of the controversy over Iraq in its many forms has caused difficulty in the by-election and generally in getting our message across about the big investment programme we have got in public services, the economy and tackling anti-social behaviour and crime."
Mr McCartney argued that despite the set back, Tony Blair was "still very popular" and was the "first choice" for the majority of British people when asked who they wanted to run the country.
"What we have not done is be able to communicate on a regular basis and in an effective way," he told BBC Radio 4's Today programme.
"What I am saying, in very honest terms, is we have got a message last night - we are going to take it on board, roll our sleeves up ...
"Charles Kennedy has had his day in court and I accept the fact he has won ...
"What Charles Kennedy cannot do is deliver the promises that he made at that by-election to get that vote.
"But what we can do and will do both now and [at] the next election is deliver the commitments we gave."
Despite the Tories defeat, Ms May said the party's vote had "held up" well in the face of predictions of a collapse in what had not been natural Tory territory in recent years.
While the Liberal Democrats celebrated Sarah Teather being elected to the Commons, Labour's London MEP Robert Evans could only manage second place and the Conservative candidate Uma Fernandes got a mere 3,368 votes.
But Ms May was upbeat about her party's future success saying Labour voters in Brent East had been looking for a Labour home and found that in the Liberal Democrats.
Ms May: Tories still the "credible alternative" to Labour
"We are still on course to show that we are the credible alternative to Labour at the next General Election," she told BBC Radio 4's Today programme.
Simon Hughes, Liberal Democrat home affairs spokesman, told BBC Breakfast he did not believe his party's resounding victory was only due to it appealing to traditional Labour voters.
Labour's first loss of a
Commons seat in a by-election since 1988 had been based on three key issues - local concerns, national issues such as the state of the health service and opposition to Iraq, Mr Hughes argued.
Ms Teather - at 29 the youngest MP in the House - received 8,158 votes winning the poll by more than 1,100 votes.
Strong support from Brent's Muslim community may have also contributed to the Liberal Democrat's success because of continuing resentment against the war in Iraq.
Thursday's by-election took place after Labour MP Paul Daisley died of cancer in June, aged just 45.
Lib Dem leader Charles Kennedy said the result was "a big boost" for the party ahead of its annual conference in Brighton next week.
"We have shown that there is no such thing as a no-go area for the Liberal Democrats," he said.