Charles Kennedy has warned his Labour and Tory rivals: "We're coming after you both."
Mr Kennedy said the Tories are now the "third party"
The Liberal Democrat leader used his keynote speech at his party's conference to launch a powerful attack on Tony Blair and Iain Duncan Smith.
He said "an unprecedented opportunity" had opened up for his party amid disillusion with Labour and the Conservatives.
The Lib Dems were now overtaking the Tories to become "the only credible challenge to the government".
Mr Kennedy, who claims many people now despair of the government, also used his speech to make another strong attack on the Iraq war.
He said "a small clique" in Mr Blair's "shop soiled" government had driven the country into an unpopular war.
And he said Mr Duncan Smith had shown the leadership of "charlatans and chancers" by criticising the outcome of the war, having been "the principal cheerleaders" for military action.
The speech, billed by aides as his most powerful attack on his rivals to date, was being seen as a further attempt by Mr Kennedy to portray his party as a potent third force in UK politics.
The Lib Dem leader suggested that MPs might have rejected war in Iraq in a Commons vote in March if they had known more about events in the run-up to war.
"But of course Parliament did not know these things, because the government - over such a critical issue - can still shroud itself in secrecy," he told delegates.
"And Tony Blair's presidential system of government can exclude the proper workings of what should be collective cabinet government, held to account by the elected House of Commons."
Mr Kennedy called for the advice of the attorney general on the legality of the war to be published and said a full independent inquiry should be held on how the government made the case for the conflict.
CHARLES KENNEDY PROFILE
Born: 25 November 1959
Elected: 1983 as MP for Ross, Cromarty and Skye (now Ross, Skye and Inverness West)
Leadership: Succeeded Paddy Ashdown as Liberal Democrat leader in 1999
High: Helping his party to make gains in the 2001 general election, prompting talk of the Lib Dems as growing opposition force.
Low: Questions about his commitment to the role of leader surfaced last year.
And he said that the Hutton Inquiry into the death of Dr David Kelly had already been "a devastating indictment of Labour in power".
The Lib Dem leader suggested Mr Blair's days as prime minister were numbered, saying he should be seen as a "future former prime minister".
The speech delighted delegates, particularly when he strayed off his script to pay tribute to the dedication of party workers.
Mr Kennedy said the challenge is for the Lib Dems to become an "effective and increasingly tough opposition".
Voters were seeking "a different approach to politics and a different style of leadership".
"Less the bonfire of the vanities - and more, occasionally, the fireside chat approach."
He added: "Mind you, it depends who's giving the chat. With the current leader of the Conservative Party, there'd be a danger that the fire would be out halfway through."
He underlined the Lib Dems' call for the introduction of proportional representation, but said values in politics must also change.
"The other two parties operate on the instinct of command and control... Our instinct is to consult and then to win consent. It's the very lack of that approach which is turning people away from political parties."
The Tories, according to Mr Kennedy were "a party of defeat - and in retreat".
They were now the "third party" while the Lib Dems were "a genuine 21st century party".
And he said Labour would lose support in heartland areas such as Newcastle, Huddersfield and Sheffield in next year's elections - while victory was predicted for Lib Dem candidate Simon Hughes in the London mayoral poll.
"Time is running out for our opponents... because a great moment of opportunity is opening up for us," he said.