Labour has made big electoral gains in England and Wales at the expense of the Conservatives and the Lib Dems.
With results declared in 165 of the 181 councils being contested across the country, Labour had gained 696 new councillors while the Conservatives had lost 374 and their Liberal Democrat coalition partners were down by 246.
Tory Prime Minister David Cameron blamed the defeat on the "difficult times" facing Britain after it slipped back into a recession last week, while Labour said the results were a wake-up call for the government to soften its flagship deficit-cutting agenda.
"There aren't easy answers," said Mr Cameron, whose party lost seats to Labour in the rural constituency he represents in parliament.
"What we have to do is take the difficult decisions to deal with the debt, deficit and broken economy that we have inherited."
But the bigger story was the potential damage to his centre-right party's electoral prospects at national level.
"People are hurting, people are suffering from the recession, people are suffering from a government that has raised taxes for them and cut taxes for millionaires. I think that's what we saw last night," said Labour leader Ed Miliband.
Foreign Secretary William Hague sought to play down the scale of the Conservatives' defeat, saying it was "perfectly common" for governments to suffer losses at mid-term local elections.
"You wouldn't look at this and say Labour was on track to win a general election," he told BBC radio. A national vote will be held in 2015.
UKIP, which stands for UK Independence Party, was contesting only a fraction of the total seats, but where it did field candidates, it averaged a record 14% of the vote.
Johnson re-elected Mayor of London
Conservative Boris Johnson won a second term as London's mayor, beating Labour rival Ken Livingstone.
Mr Johnson, 47, a flamboyant and outspoken character who has been tipped as a possible future Conservative leader, defied voting trends elsewhere to beat Livingstone, who had been mayor for eight years before losing to Johnson in 2008.
Cameron's mayors plan falls flat
Meanwhile, Mr Cameron’s hope of installing powerful elected mayors in major cities has been dashed by voters.
In a series of referendums across England, residents in nine cities rejected the new posts.
Mr Cameron had thrown his weight firmly behind the policy but only voters in Bristol embraced the idea.
The Prime Minister had attempted to use the example of London Mayor Boris Johnson to inspire enthusiasm for high-profile municipal figureheads, saying he wanted a "Boris in every city".
But Birmingham rejected the idea by 57.79% to 42.21%, on a turnout of just 27.65%.
In Newcastle 61.94% of voters opposed the change, against 38.06% in favour of a mayor, on a 31.92% turnout.
Wakefield rejected the change by 62.16% to 37.84% on a 28.62% turnout, while in Sheffield 65.03% were against a mayor, with just 34.97% in favour on a 32.09% turnout.
Manchester voted against by a margin of 53.24% to 46.76%, and Nottingham by 57.5% to 42.5%. Both cities had a low turnout of 24%.
The outcome in Coventry was more resounding, with just 36.42% backing the change and 63.58% opposing it.
In Bradford the vote was 44.87% for and 55.13% against. In neighbouring Leeds 36.65% wanted to see the new role created while a resounding 63.35% opposed the plan on a 30.48% turnout.
Bristol bucked the national trend and voted for an elected mayor, but on a turnout of just 24%.
