It will attempt to retain power for the first time in its history in the race to the presidential elections in 2006 when Luiz Inacio Lula da Silva will stand for re-election.
His adversary in the 2002 campaign, Jose Serra, roundly beat the government incumbent in Sao Paulo in the mayoral elections.
A quarter of the electorate lives in the industrial megopolis and the result of the ballots signalled at once a shift in the balance of power and lack of confidence in the government so far.
The big question in the capital Brasilia now is whether President Lula will get bogged down in an extended political campaign, which in turn will divert attention and resources away from completing his planned legislative programme.
The fallout from the state elections is already evident, with one political divorce and one wedding. The rightwing Liberal Front Party, PLF, has announced that it will form an alliance with the principal opposition party, the Social Democrats, PSDB, to try and unseat Brazil's first working-class leader.
Sao Paulo, the largest city, chose
an opposition leader as its mayor
The likely candidates in a face-off would be the re-elected mayor of Rio de Janeiro, Cesar Maia of the PFL, or Sao Paulo's governor, Gerald Alckmin of the PSDB.
Meanwhile, the union between the Democratic Movement and the Workers Party appears to be over.
The tactical swapping of allegiances in the corridors of power holds little sway on the people on the street, frustrated by their dwindling hopes of change.
Brasilia, the planned capital city built in just three years in the 1950s, the cost of which plunged the nation into huge debt, exhibits one of the worse visible chasm between rich and poor.
"I voted for President Lula, I am from the left but I am disappointed.
I don't think he wants
to make changes"
Brasilia street protester
Emerging from the spectacular edifices of the congress, the disparity is most evident on the streets. Only the poor walk or take buses and the central station - in view of the congress - is a squalid, stinking mess where barefoot beggars jostle with street hawkers to scrape change.
By contrast, in the exclusive South Lagoon, the rich playboys roar up and down the waters on jetskis and eat haute cuisine on the chic Pontao.
On 16 November, President Lula received, with full pomp and ceremony, his latest foreign visitor, South Korean President Roh Moo-hyun.
Watching the horse parades and gun salutes was Jose Negao. Standing alone dressed in a Brazilian football top and waving the national flag on a pole in front of the national congress, he was holding a symbolic solitary protest.
Outside the spectacular congress
in Brasilia, discontent is palpable
He said he has crossed 10 states across Brazil by foot and arrived in the capital, Brasilia, six months ago. He sleeps in a hammock under a tree near the presidential palace.
"I voted for Lula, I am from the left but I am disappointed. I don't think he wants to make changes," he said.
A similar note was being struck from across the city at the Beirute bar, one of the oldest and most traditional hangouts for the political chattering classes.
"All he [Lula] does is spend money and fly around the world," Ademar Moraes said. "The Workers Party is never going help the people."
Economic disparity remains just
as scandalous now as before
The popular sentiment is a fear come true for President Lula, although he continues to command high personal ratings.
In a revealing aside in a fly-on-the-wall documentary by Joao Moreira Salles, which opened in cinemas this week, Lula is on the verge of winning the presidency. "My fear is that I will be controlled by the machine and not be able to carry out my agenda," he says.
Winds of change?
"It's never been easier to make an opposition to Lula," PFL leader Jose Carlos Aleluia said this week. "With ethical scandals rising, continual unemployment and inadequate investment, our job becomes easy," he said.
Many Lula backers now see him
as a 'little darling' of the IMF
He said the election promise of 10 million new jobs never materialised and Lula has become a "little darling" of the International Monetary Fund.
The Workers Party's historic first government, elected on a wave of popular support on a platform of high moral ethics, is being eroded.
PSDB senator Tasso Jereissati summed up the wind change. "No longer is it a fight between good and bad or between the sky and the land. Now it is between the land and land," he said.