In one of the biggest upsets of the local elections, the party managed to take control of Sheffield council - which was formerly led by Education Secretary David Blunkett - winning a 10-seat majority.
Paddy Ashdown, the Liberal Democrat leader, welcomed the result, stressing that early polls showed his party's nationwide share of the vote had increased by 10 per cent to 27 per cent since the 1997 general election.
"This is great news for the Liberal Democrats. After gaining Liverpool last year Sheffield is now the second great British city we control," he said.
"Now we have to concentrate on making sure it is great news for the people of Sheffield too."
The Liberal Democrats also made significant gains in northern industrial Labour strongholds such as Stockport and Leeds; they also managed to gain an overall majority in Leicester.
They dramatically improved their majority in Liverpool by nine seats with an overall share of the vote of 56 per cent, compared to Labour's 28 per cent.
While Millbank sought to crack down on Liverpool's Labour Party, installing a new, more moderate leader, Gideon Ben-Tovim, the Liberal Democrats were seen to have delivered on local issues since they took over the council last May.
For example, within 24 hours of that election, Lib Dem leader Mike Storey was promising a freeze on Liverpool's council tax, the highest in the land.
He also took on the issue of ridding the city's pedestrianised thoroughfare, Church Street, of market traders. It was a popular move with many locals but was furiously resisted by the traders. Coun Storey also put a stop on the sell-off of open spaces.
A Liberal Democrat spokesman said last night's result showed that the party was becoming the "natural party of local government. Labour has failed to deliver on a local level and they are now paying the price."
But the party's performance in other areas was patchy and it suffered setbacks in the south of England, where it lost councils such as Worthing to the Tories. It lost also overall control in Harrogate and Eastbourne. Overall, the Liberal Democrats were down three councils and up 57 seats.
Simon Hughes, the party's health spokesman and a likely leadership contender, played down the losses, stressing that nationwide it had been a "pretty good night" for the Liberal Democrats.
"We expected to lose district councils in southern England to the Tories. We made spectacular gains in 1995 and these are traditional Tory areas"
Paddy Ashdown added that any losses by his party last night were "massively" outweighed by the gains which, he said, were "to have gained Sheffield, the great jewel in the crown, the second great city that we now run; to have increased by 10 per cent on our general election poll; and, the thing that really marks it out for me, to have increased even on the point that everybody said was a high-water mark four years ago by 3 or 4 per cent.
"The Liberal Democrats are no longer a fringe party, no longer a party of protest, but are now a party of real power governing right across the face of Britain."Reuse content