Mr Kennedy, 39, was finally crowned leader yesterday after narrowly beating his main rival Simon Hughes in a ballot of the party's 82,000 members. The MP for Ross, Skye and Inverness West, who won 57 per cent of the vote to Mr Hughes' 43 per cent, immediately pledged to "reconnect" with a British public disappointed by New Labour and unimpressed by the Tories.
Mr Kennedy pledged to overhaul the party to make it a modern campaigning force committed to social justice, Europe, and a "mature" approach to using taxes to fund public services.
But within minutes of his victory, he was plunged into controversy over plans to strengthen the Lib-Lab agreement secured by his predecesso, Paddy Ashdown.
Proclaiming that he wanted the Liberal Democrats to become "a serious party of government", the new leader made clear that he would not rule out further co-operation with the Government. Mr Kennedy stressed that the vote represented a "clear mandate" for his vision of the party's future and aides said that he would use his victory in any battle against left wing activists.
Signalling a stormy party conference this autumn, senior Kennedy figures said that it would be "impossible" for activists to argue for withdrawal from links with the Government.
The Lib-Lab joint cabinet committee, set up by Mr Ashdown and Tony Blair to improve co-operation between the parties on constitutional reform and Europe, would be strengthened, they said. Future discussions about welfare and education policy, which could cause uproar among activists, but were being prepared by Mr Ashdown, had not been not ruled out.
The potential for further trouble was heightened last night when it emerged that the Government was preparing to ditch the Jenkins recommendations on electoral reform. Senior sources have indicated that Mr Blair has succumbed to widespread opposition to proportional representation among Labour MPs and members and will advocate a weaker "alternative vote" system that maintains constituency links.
Any move away from PR is guaranteed to trigger outrage among Liberal Democrats, even though most of the leadership candidates are resigned to a referendum being postponed until after the next general election.
Mr Hughes made clear that he would not tolerate any deepening of links with Labour. He said that he wanted a clear commitment from the Government in its manifesto that it would enact enabling legislation on a referendum within the first year of the next Parliament.
"Charles' mandate is a vote of 50 per cent of the party who vote. He can judge whether he thinks that is a huge mandate, but the leader has no power to extend the remit of the JCC [Joint Cabinet Committee] without the agreement of the party," he said.
Jackie Ballard, the MP for Taunton, who came fourth, also warned of trouble if such a policy was pursued. "Clearly, the mandate Charles Kennedy has is to make a high priority of social issues and the environment and not to have any closer links with the Government. I think Paddy is probably a disappointed man - the party does not want to move the project any closer." Mr Kennedy only passed the 50 per cent winning threshold under the party's system of proportional representation after four rounds as losing candidates' votes were transferred to rivals.
His opponents pointed out that on the first round of voting, he secured 5,000 votes more than the other candidates. In his acceptance speech, Mr Kennedy paid tribute to the "magnificent, positive, inspirational" campaign fought by Mr Hughes.
Downing Street said earlier that Mr Blair hoped the co- operation between the two parties would continue.