The "shadow" cast by the Iraq war has hit Labour in Welsh and English local elections in a result that could see them plunge into third place.
Ms Jowell blames a protest vote
Culture Secretary Tessa Jowell acknowledged there had been a "strong protest vote" against her party.
Conservative co-chairman Liam Fox claimed Labour was going to have its worst result "in living memory".
Lib Dem Mark Oaten meanwhile said his party looked as though it would get a "good, steady result".
A BBC projection shows that similar results in a national ballot could put Labour in third place.
With 422,600 votes cast, the projected share of the vote showed the Conservatives on 38%, the Lib Dems on 30% and Labour on 26%.
Dr Fox said that if the BBC's projection proved correct Tony Blair was going to have a "real problem" adding that the result was "unprecedented" for a governing party.
Ms Jowell said: "There's clearly a very strong protest vote and I think we have to take account of what people are telling us."
She added: "I think the story for tonight is the failure of the Tories to position themselves to win a general election."
Mr Oaten said: "It's a good night for us - I am delighted.
"It looks like we are going to get more councillors, we have made big breakthroughs in those northern cities ... 30% [if that is how it ends up] will be a very good, steady result for us."
UK Independence Party leader Roger Knapman meanwhile rejected suggestions that they were gaining support from the Tories "in particular".
"We are talking from the three traditional parties," he claimed.
"We've had hundreds of telephone calls in the last day or so from Britain's biggest party - the stay-at-home party - saying 'I haven't voted in years but I'd like to vote for you. At long last there's a credible party that wants to restore our independence'.