LONDON, June 11: Britons angry over Iraq have punished Prime Minister Tony Blair in local elections, relegating his Labour Party to an unprecedented third place.

"I am mortified we're not doing better...The feeling was Iraq had gone wrong," Home Secretary David Blunkett said on Friday. "It's a bad night for us, but it's not meltdown."

Thursday's local council poll outcome - likely to be echoed in London mayor results due on Friday night and European Parliament results on Sunday - will renew speculation about Blair's leadership. But despite the humiliation, which parallels his US ally President George W. Bush's ratings slide over Iraq, analysts still expect Blair to win a third general election in 2005.

With results in from 95 of the 166 contested councils, Labour had lost 234 seats and control of seven councils including the one-time northern stronghold of Newcastle.

The BBC projected Labour's vote share at 26 percent, way behind the Conservatives on 38 percent, and also behind Britain's third party, the Liberal Democrats, on 30 percent.

"What you have got is a government that is clearly unpopular but a main opposition party that is not capitalising," pollster Peter Kellner said. He said the Conservatives needed 40 percent to be on course for victory in 2005.

"Blair will not be as shiningly popular as he was in 1997 but I think people will prefer to trust him again." The Conservatives however were upbeat. "It has been Labour's worst electoral performance in living memory and it is the first time that a government has been pushed into third place in mid-term elections," crowed party chairman Liam Fox.

The message will not be lost on Blair and will heighten calls from some quarters for him to give way to his powerful Chancellor of the Exchequer (Finance Minister) Gordon Brown.

Anticipating Friday's results, Blair has in recent weeks insisted he is "up for" a third general election bid and this week's unanimous U.N. resolution on Iraq has given him some respite on a persistently damaging issue.

The Conservatives might have fared better were it not for their backing of Blair over the invasion of Iraq and a surge by the hitherto marginal UK Independence Party (UKIP), which advocates withdrawal from the EU.

By midday, the Conservatives had made gains of 121 seats and eight councils. The UKIP picked up its first council seats, in the towns of Derby and Hull. "People are absolutely fed up of Europe," said Hull's new UKIP councillor John Cornforth.

A poll for the European Parliament said the UKIP - tapping into Britons' historically suspicious and ambivalent view of Europe - would win up to 12 of 78 British seats when results for that poll are declared. -Reuters