More than half a dozen ministers and scores of backbenchers are understood to have welcomed the shift in direction after the resignation of Peter Mandelson.
The most senior minister to come out publicly behind Mr Prescott was Margaret Beckett, Leader of the House, who suggested that the Chancellor may bring forward investment plans to combat the threat of unemployment next year.
In what some MPs described as a "bloodless coup", opponents of Mr Mandelson's aggressive New Labour programme seized their chance while Tony Blair was on holiday in the Seychelles.
Calls for greater intervention in the economy and an end to close links with the Liberal Democrats reached a new intensity as the party took in the full impact of the Deputy Prime Minister's new alliance with the Chancellor.
Mr Prescott's call for "Keynesian" economics and more "substance" in government policy - in an interview in yesterday's Independent - reverberated through Westminster as it became clear that the more unpopular elements of the New Labour "project" face the axe.
Downing Street moved to play down divisions yesterday and Mr Blair used his new year message to reassure voters that the New Labour programme was still on track. But after the loss of Mr Mandelson, the Prime Minister is facing strident calls to ditch his co-operation pact with Paddy Ashdown. The Lib-Lab deal infuriated many in the party as it offered the prospect of Liberal Democrats having a say in key policies such as health and education.
"Tony is looking increasingly isolated on the links with the Liberals. There is a new mood around and Prescott embodies it," said a senior party source.
Mr Prescott today issues his own new year message stressing that Labour should be "staying true to its traditional values of social justice, strong communities and improving opportunity for all". He continues: "We have a record to be proud of, so let's get our message across to ordinary people, so they know what we are achieving."
Ken Jackson, general secretary of the AEU engineering union, normally a staunch supporter of New Labour policies, also praised Mr Prescott's initiative. "Our members need real policies, not flashy presentation. Their jobs won't be saved by spin," he said. "The clear majority of party members have no interest in hopping into bed with the nearest Liberal. It's time to get back to our real priorities on health, education and jobs. We shouldn't be trying to forge new links with the Liberals because history shows that they do us no favours."
In his new year message, believed to have been brought forward to reassert his authority, Mr Blair says: "Of course, from time to time, the Government - like any - will suffer knocks ... But they come and they go. What stays is the sense of national purpose. What stays is the manifesto on which the Government was elected, a programme for reform and renewal. A programme which, line by line, we are putting in place."Reuse content