Labour failed to win the mayoral race in London, where Boris Johnson’s victory provided a consolation prize for Conservatives on a grim day for both coalition parties.
Tory favourite Mr Johnson defeated Labour’s Ken Livingstone for the second time in succession, but the winning margin of 51.5% to 48.5% was tighter than predicted in many polls and the result was delayed until minutes before midnight by glitches in the counting process.
Mr Johnson promised to dedicate his second four-year term to “fighting for a good deal for Londoners”, while Mr Livingstone announced he had fought his last election.
Congratulating his rival, Mr Livingstone said he suspected that Mr Johnson had now sealed the result of the next Conservative leadership contest.
After counting was completed in all 181 councils holding elections in England, Scotland and Wales, Labour had exceeded expectations by gaining 824 seats and winning control over an additional 32 authorities, while 403 Tories and 330 Liberal Democrats fell victim to a cull of coalition councillors.
A BBC projection put Labour’s share of vote at 38%, with Conservatives on 31% and Lib Dems on 16%.
But low turnouts averaging less than one-third of eligible voters reflected widespread public disengagement from the political battle.
The results represented Labour’s most successful showing in council polls since Tony Blair’s leadership, and saw them make deep inroads into constituencies in the Midlands and south of England which Ed Miliband will have to win if he is to stand a chance of entering Downing Street at the general election scheduled for 2015.
Mr Cameron faced demands from a string of Tory right-wingers - including one minister - to rein in his coalition partners, refocus on Conservative priorities and drop “barmy” proposals on gay marriage and reform of the House of Lords.
And senior Lib Dem peer Lord Oakeshott issued a warning to Nick Clegg that his party will no longer be a “nationwide, powerful, independent force” by 2015 unless he takes urgent action to revive its fortunes.
Mr Cameron and Mr Clegg are expected to attempt to relaunch the coalition with a joint press conference on Tuesday, ahead of the May 9 Queen’s Speech which will set out the Government’s agenda for the coming year.
The Prime Minister said “sorry” to Tory councillors who lost their seats, while Mr Clegg said he was “really sad” at his party’s results, which left its local authority representation at its lowest point since the Liberal Democrats were formed in 1988 and saw mayoral candidate Brian Paddick trail in fourth behind the Greens in London.
Mr Miliband hailed his party’s success in seizing control of key southern cities like Plymouth, Exeter, Southampton, Reading and Harlow as well as seeing off the threat of the SNP north of the border, declaring: “Labour is back throughout the country, on your side.”
But the Labour leader - who shrugged off an assault with an egg in Southampton by joking it couldn’t take away from “a cracking result” in the city - was careful to avoid triumphalism, acknowledging he had “more work to do” to regain voters’ trust.
Addressing supporters in Birmingham, where Labour won back control after eight years in opposition, Mr Miliband said: “This Government promised change and they have made things worse, not better. They are standing up for the rich and powerful, not standing up for the millions of ordinary families who need help.
“The message of these results is that when you have a Government piling unfairness on top of economic failure, people are not going to support them.”
Mr Cameron, who suffered the embarrassment of losing seats in his Witney constituency to Labour, blamed the tough economic climate for Tory setbacks.
“These are difficult times and there aren’t easy answers,” said the Prime Minister.
“What we have to do is take the difficult decisions to deal with the debt, deficit and broken economy that we’ve inherited and we will go on making those decisions and we’ve got to do the right thing for our country.”
But the PM came under intense pressure to change course from MPs on the right of his party, who fear a haemorrhage of voters to the UK Independence Party unless he shifts the Government’s agenda firmly back onto Conservative ground.
Former ministerial aide Stewart Jackson said the PM was now “on notice that he does need to raise his game”.
“He needs to concentrate on bread-and-butter issues like jobs and mortgages and public services and above all develop a clear route-map to growth and stop fixating on the agenda of a liberal clique and barmy policies such as Lords reform and gay marriage,” said Mr Jackson.
Epping Forest MP Eleanor Laing urged the Tory leader to give less regard to Liberal Democrat “student politics” on constitutional reform, while former frontbencher Gary Streeter said his constituents were “gagging” for a tougher line on law and order.
Defence minister Gerald Howarth also expressed doubts about the Government’s agenda, saying: “There are issues, for example, like the proposals for gay marriage. A lot of Conservatives have written to me saying ‘I am a lifelong Conservative, there is no mandate for this, why is this being proceeded with?’”
Mr Cameron received a stinging rebuff from voters for his pet project of delivering “a Boris in every city”, as nine English cities turned down the idea of directly-elected mayors in referendums, on very low turnouts. Only Bristol approved the proposal, while Doncaster voted to retain the post.
Meanwhile, Labour won the races for newly-created positions of elected mayor in both Liverpool and Salford.
Mr Clegg said that, despite the Lib Dems’ woeful performance, he was “determined” his party will “continue to play our role in rescuing, repairing and reforming the British economy”.
“It’s not an easy job and it can’t be done overnight but our duty is to boost jobs and investment and to restore a sense of hope and optimism to our country,” said the Deputy Prime Minister.
But he received a stark warning from Lord Oakeshott, a former party Treasury spokesman and close ally of Business Secretary Vince Cable.
“For me, what matters is whether we can fight the next election as a nationwide, powerful, independent force,” said the Lib Dem peer. “And if we have another year like this, we won’t be able to.”