Minister for London Tessa Jowell, who masterminded Labour's campaign in the capital, conceded "this is likely to be tough".

But she insisted that the picture on the doorstep was not as bad as many pundits were predicting.

She told the BBC: "I don't think it is as bad for us as many of the commentators are suggesting.

"But I'm not predicting that tonight is going to be easy for us."

Shadow chancellor George Osborne said a 40% share of the votes would represent a good night for the Tories and claimed the elections posed a key test for Prime Minister Gordon Brown.

He told the BBC: "When these councils were fought four years ago we only got 37%, so naturally we want to make an advance on that.

"As Conservatives we want to demonstrate that we can govern locally. The change we can bring to local councils is also a change we can bring nationally."

He added: "These are the first elections Gordon Brown has fought as Prime Minister, so they are not mid-term in the classic sense.

"Labour have done their big gamble in Parliament, they have changed their leader without even having a leadership election let alone a general election and we will see how he does."

One of the top Tory targets is Bury, where the party is seeking to gain control of the council for the first time in 22 years.

Bury North Labour MP David Chaytor predicted a tough night for his party.

He said: "I think we have known for some time this was going to be a really difficult night for us. Our main objective is to limit the damage."

Former Liberal Democrat leader Charles Kennedy, who led his party to its greatest local election success four years ago, achieving a 29% share of the national vote, said current party chief Nick Clegg could match his achievement.

But he said the aim was for a "solid" performance because four years ago the party was reaping the benefits of its opposition to the Iraq War.

He told the BBC: "It is not impossible because Labour I think are in very great difficulty.

"In these equivalent elections last time around Labour dropped to third place in the share of the popular vote."

Local Government Secretary Hazel Blears said the current economic turmoil was harming the Government at the ballot box.

As the first results came in indicating Tory gains, she told Sky News: "What we hear tonight we will, of course, take extremely seriously.

"If you want to be a politician, if you want to carry on making a difference you have to be in touch with people.

"But I do think the economy is difficult for people, they are feeling the pinch - mortgages, fuel prices, all of that - and inevitably, who are you going to blame, you are going to blame the Government."

The Tories failed to woo Worcester woman to gain overall control of the authority - a key target for the party.

But Conservative Party chairwoman Caroline Spelman told Sky News: "The point is that Conservatives are winning all across Britain.

"Tonight we are going to see the Conservatives making good progress in the North of England as well as in the West Midlands and Wales.

"You can't just pluck one part of the country out as some sort of a template."

Cabinet minister John Denham, MP for Southampton Itchen, acknowledged that the Conservative seizure of control of the city was bad news for Labour.

He said Labour now had to show it was listening to the concerns of voters in the South.

"We lost seats, but my reading of it is that the Liberal Democrat vote collapsed, some of our voters stayed at home, we didn't see people switching parties and the Tories got their voters back," Mr Denham told the BBC.

"That's what happens in these local election nights.

"(If) we go from here, show the voters that we have been listening to the things they are genuinely concerned about, show that we can address them here in the South, then we can and will win the next general election."