Tony Blair says Labour's results in the 2007 elections will provide a "perfectly good springboard" for the party to win the next General Election.
Mr Blair said Labour did not get the hammering people expected.
Despite his party suffering big losses in England and Wales, and later being defeated in Scotland by the SNP, he said Labour had escaped a "rout".
He said it had been a "dreadful set of results" for the Lib Dems and said the Tories had not "broken through".
The elections were Mr Blair's last before he steps down as Labour leader.
Speaking at Labour's London HQ after about half of the results were known, Mr Blair said: "Everyone said we were going to get hammered, it was going to be a rout, and it's not turned out like that.
"The fact is we have come from 10 points behind in Scotland to neck and neck.
"We have done rather better in the English elections than we did three years ago and in Wales we are going to retain control and be the largest party and be the government.
"You always take a hit in the mid-term but these results provide a perfectly good springboard to go on and win the next General Election."
But he warned: "We mustn't be complacent. There are challenges ahead. Always in mid-term, when you are 10 years into government, it's tough."
With most English results in, Labour has lost more than 480 councillors, the Tories have gained 870 and the Lib Dems have lost 247.
Labour, which has traditionally been the electoral powerhouse in Scotland, has seen its position slip by four seats there to 46, while the SNP gained 20 to just overtake it at 47 seats.
The party also lost four Welsh assembly members, although it does remain the largest party in the Welsh assembly with 26 seats.
BBC research suggests, as a projected national share of the vote, the Conservatives got 40%, the same as last year, Labour got 27%, one point up, and the Lib Dems were down one point on a year ago at 26%.
The polls were the biggest electoral test since 2005's general election - and are Tony Blair's last as Labour leader.
Any fallout from the elections will have to be dealt with by his expected successor, Gordon Brown.
Mr Brown, speaking in Scotland, said voters had come back to Labour on election day compared with figures in opinion polls in recent weeks.
He said: "To all those who came back to Labour - and to everyone throughout Britain - my resolve is that we, the Labour Party, will listen and we will learn as we continue to work for and serve the people of Britain."
'Wake up call'
Ex-minister Michael Meacher, a Labour leadership candidate, said: "The election results, though not as bad as predicted, are a warning to Labour.
"We must take the hint from voters. Labour can still win the next general election, but there is an indisputable need to change direction."
Fellow leadership candidate John McDonnell said: "These results confirm that we need to learn some lessons and one of the ways we can do that is to confirm that there will be a full and fair debate via a democratic leadership election."
Deputy leadership candidate Jon Cruddas said the results should be a "wake up" call for Labour.
Mr Blair is expected to set out his resignation timetable next week.
Mr Brown is the overwhelming favourite to succeed him, although there is expected to be a hotly contested battle to succeed John Prescott as deputy Labour leader. The process should take seven weeks with the new PM and deputy PM taking office around the start of July.