David Cameron and Vale of Glamorgan Tory leader Gordon Kemp in Barry
Labour has lost control of five councils across Wales and could also be out of office in another.
Labour was defeated in its south Wales valley heartland areas of Merthyr Tydfil, Blaenau Gwent, Torfaen and Caerphilly. It also lost Flintshire.
Plaid Cymru lost control of Gwynedd, with both party president Dafydd Iwan and the council's leader losing seats.
The Liberal Democrats strengthened their lead in Cardiff. The Tories gained control of Vale of Glamorgan.
With the count continuing on Friday, the results show Labour has lost control of Caerphilly, where the former Labour Welsh Secretary Ron Davies was elected as an independent.
In Torfaen, Labour's numbers were almost halved, losing 18 of its 34 seats, to take the local authority from a Labour stronghold to no overall control with independents gaining nine to become the second largest group.
It has emerged the Labour majority in Blaenau Gwent shrank before the election to about eight after some councillors defected to other groups.
In Merthyr, the party saw its lead slip to independents, with the Lib Dems gaining six seats from a start of zero.
Two points of cheer for Labour were a comfortable win in Neath Port Talbot and gaining ground in Bridgend to take half its 54 seats.
He said: "It has been unrelenting adverse news - no good news and an unrelenting series of adverse headlines really going back to the impact of the credit crunch suddenly hitting home last summer.
"There's an anti-politician mood out there, there's no doubt about that, so protest candidates are doing extremely well."
First Minister and Welsh Labour leader Rhodri Morgan said the party's results came after "a huge amount of bad news about the economy".
WHO RAN WELSH COUNCILS FROM 2004 - 2008
Blaenau Gwent: Labour
Bridgend: Liberal Democrat / Conservative / Plaid Cymru / Independent
Cardiff: Liberal Democrat
Carmarthen: Labour / Independent
Ceredigion: Independent / Liberal Democrat / Labour
Conwy: Independent / Conservative / Plaid Cymru / Liberal Democrat
Denbighshire: Independent / Conservative / Plaid Cymru
Gwynedd: Plaid Cymru
Merthyr: Labour / Independent
Neath Port Talbot: Labour
Rhondda Cynon Taf: Labour
Swansea: Liberal Democrat / Independent
Vale of Glamorgan: Labour / Plaid Cymru / Independent
Wrexham: Liberal Democrat-led Board
Ynys Mon: Anglesey Forward / Radical Independents
Plaid Cymru's hopes of holding on to Gwynedd, the one council it controlled in Wales were dashed.
The party suffered the shock of national party president Dafydd Iwan losing his seat to Llais Gwynedd (Gwynedd Voice), the protest group set up to halt school reorganisation plans.
The party's council leader, Richard Parry Hughes, also lost his seat. Llais Gwynedd also had another councillor elected unopposed.
Plaid MP Elfyn Llwyd MP said of the Gwynedd results: "It's not been good but it's not been a disaster.
"It's been an evening of kicking Plaid and, interestingly, an evening of kicking the incumbent councillors as well."
The party also fell short of the 22 seats needed to win Ceredigion but is the largest party after three gains despite losing long-serving councillor Penri James, Ceredigion's prospective parliamentary candidate for the party.
The Conservatives comfortably held their only Welsh council, Monmouthshire, and gained Vale of Glamorgan and expected to have two representatives on the ruling board in Powys after adding five councillors.
Conservative Party leader David Cameron made a flying visit to Barry in the Vale of Glamorgan, on Friday morning.
He said: "I think it shows Wales, north and south, the Conservative Party is back in contention, winning seats."
In Swansea, with 63 seats out of 72 declared so far, it seems the city will once again be ruled by a coalition with Labour unlikely to regain the majority it last held four years ago.
Two crucial recounts began in Swansea on Friday morning, in Cockett and Sketty wards, and with early results suggesting the Lib Dems could still form a new coalition with the independents.
There was also good news for the Lib Dems in Cardiff, where they made three gains to take 35 seats and overall control of the authority. Labour claimed only 13 seats in a city where 12 years ago they held 65.
Welsh Lib Dem leader Mike German hailed the results as "a good night".
He said: "Across Wales we have been making steady gains, on top of the spectacular gains we made four years ago."
On Anglesey, prominent independent John Arthur Jones lost his Cyngar seat to Plaid Cymru by 200 votes, and independent John Meirion Davies, holder of the education portfolio on Anglesey, lost to the Liberal Democrats.