The Labour leadership yesterday sought to limit the damage by dismissing it as a "summer hiccup". But the attack is certain to cost Ms Short a post in a Blair Cabinet.
Mr Blair has been left in no doubt by senior colleagues that he should heed some of her complaints about the pace of change being forced on the party by the "people in the dark", the image-makers behind the leadership, including Peter Mandelson, now in charge of campaigning for the election.
The leadership insisted there were no policy differences between Ms Short and Mr Blair. But senior figures are alarmed at the threat to cut child benefit from 16-18 year-olds, Mr Blair's intervention in the Tube strike, the hints of a weakening of support for the European Social Chapter, and speculation over future changes to Labour's relations with the trades unions.
John Prescott, the deputy Labour leader, who acted decisively to limit the damage caused by Ms Short's outburst, will shortly publish a pamphlet underlining the links between New Labour and the reforming Attlee government of 1945, which ushered in the welfare state with the National Health Service. The move was agreed with Mr Blair three weeks ago.
Mr Blair's office said Ms Short would not be disciplined for calling New Labour a "lie". In a statement, Ms Short said: "There are no policy differences between us and I strongly support Tony Blair's leadership. I will be campaigning hard for our election victory. The story has been grossly exaggerated."
Mr Blair was not planning to cut short his holiday in Tuscany to deal with the crisis. His office said: "It is clear that the interview was given in the wake of the Shadow Cabinet reshuffle and it is equally clear that she is now happy with her new job and is throwing herself into the role. Mr Blair believes the interview has been blown out of all proportion and he regards the matter as closed."Reuse content