In Blair's first major electoral test since he led a deeply sceptical nation into the Iraq war, early figures from polls for 166 local and city councils showed Labour losing significant ground to both the main opposition parties on Friday.
Incumbent governments in Britain are traditionally punished during such midterm polls, but the figures made notably grim reading for a prime minister already under considerable pressure on a number of fronts.
With votes counted in almost a quarter of the councils, taking in varied chunks of England and Wales, Labour had lost 86 seats while the Conservative and Liberal Democrat parties picked up 83 seats between them.
In third place
More worrying for Blair, a BBC extrapolation of the vote for the entire country, using a nationally representative sample of more than 400,000 votes cast, showed Labour pushed into a humiliating third place behind the other two parties, with just 26% support.
The government was swiftly on the defensive, with Health Secretary John Reid telling the BBC that he had always expected "a very difficult night".
London Mayor Ken Livingstone is
opposed to Labour's Iraq policy
Pundits also pointed to the risk posed to the right-wing Conservatives by the previously fringe UK Independence Party, tipped to steal votes with its anti-EU message.
Thursday's election also saw people in Britain and Northern Ireland pick 78 deputies to the European Parliament, although these results will not be declared until Sunday, after the rest of the European Union has finished voting.
In London, a separate election was additionally held deciding whether mayor Ken Livingstone - an opponent of the Iraq war but running on a Labour ticket- would be re-elected, a verdict not expected before Friday afternoon.
Blair himself has been conspicuous by his absence throughout the election campaign, prompting opposition leaders to dub him the "invisible man" of British politics and an electoral liability.
He spent polling day at the Group of Eight summit in the US state of Georgia.
Blair admitted that Labour was likely to suffer due to public anger over Iraq.