In a joint statement pledging closer co-operation, the leaders announced that the remit of the Cabinet committee which includes Mr Ashdown and other senior Lib Dems would be extended from constitutional reform to other policy issues. These would include public services and Europe.
The Prime Minister and Lib Dem leader said this would be "an important step in challenging the destructive tribalism that can afflict British politics, even where parties find themselves in agreement".
But the two men sought to reassure critics in both parties by insisting that the agreement would not lead to an electoral pact or a merger.
They said the "two sovereign and independent parties" would "continue to offer different choices to the British people in the ballot box whenever the opportunity arises. To do otherwise would weaken British politics and diminish the choices available to the voters".
But Mr Blair and Mr Ashdown hinted at a further convergence. They said their aim was "to ensure the ascendancy of progressive politics in Britain, against a Conservative Party which seems determined to travel further and further to the right. And to continue the reshaping of British politics for the next century".
The new deal was seen at Westminster as a sign that the Prime Minister had convinced Mr Ashdown he would eventually change the voting system for House of Commons elections. Some Lib Dems doubted his commitment to electoral reform after his response to last month's report by a commission on proportional representation chaired by Lord Jenkins.
Mr Blair sought to allay Lib Dem fears last night by saying that a referendum on the Jenkins plan could still be held before the next general election.
In a written Commons reply, he said the date had not been decided and that it should be held "at the earliest moment it is sensible to do so". Cabinet ministers believe a referendum on electoral reform is unlikely before the next election, but that Mr Blair will seek to persuade Labour to endorse it if he wins a second term.
A review of the work of the Lib-Lab Cabinet committee will be carried out by Jack Cunningham, Mr Blair's Cabinet "enforcer", and Alan Beith, the Lib Dem deputy leader. Downing Street suggested its work would be extended to cover health, education, welfare reform and Europe.
There was speculation among MPs about a trade-off under which Mr Blair backed electoral reform in return for Mr Ashdown's support over the single currency. The Lib Dems favour early entry and the Prime Minister is keen to build as wide a coalition as possible for his more cautious policy, which is expected to lead to a referendum on the euro early in the next parliament.
Mr Ashdown faced a tricky meeting last night of his MPs, some of whom fear Mr Blair is trying to prevent the Lib Dems criticising the Government's record on domestic policies.
Some Labour MPs renewed their claims that the leaders had a hidden agenda to merge the parties. John McWilliam, MP for Blaydon, said: "I can't see the point of this."Reuse content