Charles Kennedy has claimed a Lib Dem surge in two by-elections is not a "flash in the pan" and that his party is poised to overtake the Tories.
Lib Dem Parmjit Gill celebrates victory in Leicester South
The Lib Dems overturned a large Labour majority to win Leicester South and came a close second to Labour in Birmingham Hodge Hill.
The Tories came third in both contests prompting Labour to say the night was a "disaster" for Michael Howard.
But Tory co-chairman Liam Fox said it showed voters were sick of Labour.
'Coming to the boil'
Mr Kennedy said his party would have won the Birmingham seat if the anti-war vote had not been split by George Galloway's Respect party.
Mr Kennedy said: "It was an excellent night, an absolutely stunning night for us. I think Iraq was a huge issue."
He added: "I notice the Labour Party are trying to peddle the line that this is a flash in the pan. How many flashes do you have to see? This pan is glistering and coming to the boil."
Parmjit Singh Gill (LD) 10,274 (34.94%)
Sir Peter Soulsby (Lab) 8,620 (29.31%)
Chris Heaton-Harris (C) 5,796 (19.71%)
Yvonne Ridley (Respect) 3,724 (12.66%)
David Roberts (Soc Lab) 263 (0.89%)
RU Seerious (Loony) 225 (0.77%)
Patrick Kennedy (Ind) 204 (0.69%)
Paul Lord (Ind) 186 (0.63%)
Mark Benson (Ind) 55 (0.19%)
Jiten Bardwaj (Ind) 36 (0.12%)
Alan Barrett (Ind) 25 (0.09%)
Lib Dem majority 1,654
Turning his fire on the Conservatives, Mr Kennedy said the results were "devastating" for the party and proved Mr Howard's "honeymoon period" as leader was over.
"As Labour becomes unpopular, unlike what we have seen over many decades in British politics, people are not turning to the Conservatives as an alternative, they are turning to the Liberal Democrats.
"That changes the rules of engagement for the next general election completely," he told BBC Radio 4's Today programme.
Health Secretary John Reid acknowledged the result presented the government with a challenge but he added that they presented the Tories with a crisis "because they are going backwards".
He insisted that for Labour the outcome was "not unsatisfactory" given the party had been governing for seven years.
BIRMINGHAM HODGE HILL
Byrne (Lab) 7,451 (36.45%)
Davies (LD) 6,991 (34.20%)
Eyre (C) 3,543 (17.33%)
John Rees (Respect) 1,282 (6.27%)
James Starkey (NF) 805 (3.94%)
Mark Wheatley (Eng Dem) 277 (1.36%)
James Hargreaves (OCV) 90 (0.44%)
Lab majority: 460
Tory co-chairman Liam Fox said: "I think
there is one very clear message from the local elections, the European elections
and these elections.
"Voters feel let down by Labour and they are increasingly
looking for a party that will beat Labour."
He said the Tories would never have expected to do well in the seats, despite insisting during the campaign that it was a three-horse race.
Elections expert Professor John Curtice told BBC Radio 4's World at One: "I don't think we can say Labour are going to lose the next election but if they have any sense they need to realise they are deep trouble - probably in rather deeper trouble than most normal mid-term protest government blues consist of."
The normally loyal Labour backbencher Geraldine Smith said it was time for Tony Blair to step down as the by-elections had been "pretty disastrous" for both her party and the Tories.
"I think he has lost the trust of a large part of the British people and it
is not something that is going to go away," she told BBC Radio 4's The World at One.
She added: "Lord Butler's report has revealed that Parliament, the people and the press
had all been misled. They had not been lied to, but they had just not been told
the whole truth.
"I think politicians, and indeed journalists, know that they were misled out
of political expediency."
In Leicester South, Parmjit Singh Gill became the first Lib Dem MP from an ethnic minority in a 21% swing from Labour.
In his victory speech, Mr Gill said the people had spoken for Britain and "the message is that the prime minister has abused and lost their trust" over Iraq.
Labour just held Birmingham Hodge Hill by 460 votes ahead of the Lib Dems.
In a turnout of 36%, the Conservatives slipped to third and Labour's victorious Liam Byrne said: "This is a disaster for Michael Howard."