Labour was in for a "horrible night", Iain Duncan Smith, the former Conservative leader, predicted as the first results for English councils came through in the early hours.

His view was echoed by Jon Cruddas, one of the contenders for the Labour deputy leadership, who bemoaned that his party was losing councillors across the country.

"This must act as a wake up call for Labour. We urgently need to address the collapse of the party on the ground and the breakdown in our relationship with the electorate. The two things are connected.

"Everything relates back to the need to rebuild our party and renew our sense of purpose and direction," added the MP for Dagenham.

Earlier, Jack Straw, the Commons Leader and Gordon Brown's campaign manager, acknowledged Labour was suffering from "mid-term blues" but pointed out how governing parties often did badly at local elections and then went on to win the subsequent General Election.

Labour strategists were anticipating heavy losses across a swath of town halls with a reduction of up to 700 council seats from the 2385 the governing party was defending.

Of course, a bad result for Tony Blair, the outgoing Prime Minister, would also be a bad result for Gordon Brown, the incoming premier, given it would diminish the party's support base ahead of the next general election.

However, the full picture south of the border will not be known until later this afternoon because while almost half of the counts started straight after polls closed, 169 of the 312 authorities delayed their counts until today because of a new postal voting system.

Conservatives gained Plymouth and Chester from No Overall Control (NOC), which Francis Maude, the party chairman, said was "very encouraging", claiming the Tories were breaking out of their beachhead in the north.

"We're doing better than we might have hoped...We are making progress," he declared.

However, the party failed to gain the target council of Bury in Greater Manchester, just such a suburban seat the Opposition would need to seize to be in a position to gain power. Nor did the party gain a single seat in Manchester itself.

Earlier, the Conservatives were playing down their prospects of picking up any seats in such Tory-free zones but had hopes of taking control of councils such as Birmingham and Bournemouth as well as reinforcing their position in Yorkshire.

One potentially important indicator of how David Cameron was doing would be the percentage share of the vote the Tories polled.

Their previous General Election victories in 1979 and 1992 were preceded by local authority ballots in which the party secured around 45% of the vote.

Needless to say, the Conservative leader would be looking for a similar result today.

Speaking on Sky News Mr Duncan Smith said: "The truth is, this is going to be a horrible night for Labour."

He added: "I know that we will have a good night, I'm not sure how much of a good night, but I know the momentum is with us, I think people are rediscovering the idea that it is time now for a change."

By 2am, the Conservatives had gained 87 seats and Labour had lost 43. However, another story emerging was the loss of seats for the Liberal Democrats.

While Sir Menzies Campbell's party gained Hull council in the fiefdom of John Prescott, the Deputy Prime Minister, and Rochdale, both from NOC, it lost 40 seats by the early hours.

Prior to the poll, the Lib Dems were covering their backs by strenuously playing down their chances of making large gains, pointing out that many of the seats up for grabs were last contested at a high point for the party in 2003.

However, a bad result for the Lib Dems could resurrect question-marks about Sir Menzies's leadership.

While almost 33 million people were eligible to vote yesterday in England's local elections, turnout was expected to be well below 50% with many traditional Labour supporters staying at home despite the fine weather and the exhortations of party HQ to vote. In last year's council elections, only 36% of the electorate bothered to vote.

However, one sign that some people were not apathetic was the election of Tory candidate and A level student William Lloyd in Brentwood in Essex, who became England's youngest councillor at the age of 18, a situation made possible after the age of eligibility was lowered from 21 to 18.

Another key indicator being watched as results came in was the performance of the far-right British National Party, which had about 900 candidates standing in the various elections and hoped to add to its tally of 32 councillors in England.

It suffered an early blow, losing its only seat on Broxbourne Council.

In all, 312 of England's 388 local authorities went to the polls with all the seats up for grabs on 25 unitary authorities and 150 district councils as well as one-third of seats facing re-election in 36 metropolitan boroughs, 20 unitary authorities and 81 shire districts. London was the only area entirely untouched by the elections.

It was the biggest election in the local cycle in England with around 10,500 seats being contested.