Deputy Prime Minister John Prescott has urged Labour to fight on following a shock defeat to the Lib Dems in the Dunfermline and West Fife by-election.
John Prescott said Labour should have won
The Libs Dems took the seat by 1,800 votes, overturning an 11,500 Labour majority at the last election.
Mr Prescott said the government had to "get on" with delivering its programme.
But Lib Dems said the win, in the seat where Gordon Brown lives, raised questions about the chancellor's "succession" as prime minister.
Mr Brown, MP for the neighbouring constituency, had been active in Labour's campaign to retain Dunfermline and West Fife following the death of MP Rachel Squire in January.
But Willie Rennie, the former Liberal Democrat Scottish chief executive, secured 12,391 of the votes on Thursday, after a 16.24% swing in the party's favour.
Willie Rennie (Lib Dem) 12,391
Catherine Stihler (Lab) 10,591
Douglas Chapman (SNP) 7,261
Carrie Ruxton (Cons) 2,702
John McAllion (SSP) 537
James Hargreaves (SCP) 411
Thomas Minogue (AFBTP) 374
Ian Borland (UKIP) 208
Dick Rodgers (CG) 103
Acting Lib Dem leader Sir Menzies Campbell told BBC Radio 4's Today programme: "I think there will be some questions asked because people will say 'well if Gordon Brown is going to be the prime minister, and he can't hold a traditional Labour seat on his own back doorstep then just how is he going to go down in the leafy glades of Essex or Surrey or places like that?
"This must raise some questions about the succession."
The Lib Dem win follows several difficult weeks for the party since former leader Charles Kennedy admitted a drink problem and later resigned.
Since then, former home affairs spokesman Mark Oaten has been exposed in a newspaper over an alleged affair with a male prostitute and party president Simon Hughes has apologised for misleading people about his sexuality.
'Always want to win'
Sir Menzies said a "period of turbulence" was now over.
Meanwhile, Mr Prescott said: "Of course we're disappointed at the by-election result. We always want to win.
"We should have won up there but we did our best, we put our case and we'll get on with now delivering the programme that we promised at the election."
Transport Secretary Alistair Darling said the government had lost the by-election mainly because of "local issues", such as tolls on the Forth Road Bridge, hospital cutbacks, the state of Dunfermline town centre and job losses at a printer factory.
Mr Rennie said voters had "sent a powerful message to the Labour government that will rock the foundations of Downing Street, Number 10 and Number 11".
"Labour has taken the people up and down the country for granted for far too long, too much spin and not enough delivery - it is time that Tony Blair and Gordon Brown both got that message," he said.
The result comes as Labour begins its spring conference in Blackpool.
Its candidate, Catherine Stihler, received 10,591 votes in the by-election; the SNP's Douglas Chapman was third with 7,261; and Conservative Carrie Ruxton secured 2,702.
The Lib Dems increased their share of the vote on the last poll by 15.67% (35.83% share), while Labour's fell by 16.81% (30.63%). The SNP saw a slight increase of 2.07% (21%), but the Tories were down by 2.51% (7.81%).