However, the Liberal Democrats would have to compromise on their demand for full-scale proportional representation, he told his party's conference in Brighton.
He urged the party to "keep its nerve" rather than throw away "the best chance this century of winning fair votes for Westminster".
Mr Ashdown increased the pressure on Mr Blair to come out in favour of electoral reform, warning that his dream of realigning British politics through closer co-operation between Labour and the Lib Dems would lie in ruins unless he did so.
The Lib Dem leader assured his party that liberal values were now "the dominant agenda of ideas" in Britain. But the party had to have self- confidence and take the risks necessary to win "the great prize" of electoral reform.
Although ministers later dismissed Mr Ashdown's "empty rhetoric," his speech highlighted the acute dilemma facing Mr Blair over next month's report by a commission on voting reform, chaired by Lord Jenkins, a Liberal Democrat.
It is expected to propose that about 500 MPs should be elected under the alternative vote system, allowing people to list candidates in their order of preference, "topped-up" by a further 100 chosen to reflect each party's share of the vote in each region.
Mr Ashdown told the Prime Minister bluntly that his decision on the report would determine whether he was a "pluralist or a control freak".
"Your language tells me you're the first. But too many of your Government's actions tell me you're the second," Mr Ashdown said.
"Your Government could become potentially a historic one. But only if it lets go a little, if it relaxes a little, if it tolerates dissent a little, if it welcomes diversity a little, and if it interferes a little less."
Hinting that Lib-Lab co-operation on the joint cabinet committee on constitutional reform would be halted if Mr Blair fails to act on the Jenkins report, he said Mr Blair's decision "will determine the future course of our work together, and it will tell us what kind of country you want Britain to be".
The Lib Dem leader also warned, as disclosed in The Independent yesterday, that the co-operation would be jeopardised if the Government failed to bring in legislation on freedom of information in the next session of Parliament.
In an attempt to placate Lib Dem activists who believe that the party has moved too close to Labour, Mr Ashdown accused the Government of bringing in a "nanny state" through actions such as banning beef on the bone and telling parents what time their children should go to bed.
He said there was an "extraordinary paradox" at the heart of a government which wanted to devolve power, but also control it from the centre. Although it had brought in legislation such as devolution for Scotland, Labour "found it impossible to make the mental leap" to go with it.
Mr Ashdown warned that Labour's "arrogance" in Scotland, where its party took its orders from its London headquarters, would play into the hands of the "separatists".
He dismissed the idea that the Lib Dems, who could hold the balance of power in the Scottish Parliament after its first elections next May, would threaten to link up with the SNP in order to put pressure on Mr Blair to deliver PR.
"The last thing Liberal Democrats want is for Scotland to separate from the United Kingdom - and Liberal Democrats in Scotland will fight separation, tooth and nail."
Mr Ashdown attacked Labour councils facing allegations of sleaze. He said Britain's rotten boroughs, most Labour-controlled, "have shamed local government and have shamed our democracy."
Unlike Labour, the Lib Dems were not afraid to call for the redistribution of wealth. He mocked Mr Blair's claims to be playing a leading role in Europe and said events would force him to call a referendum on the single currency.
On foreign affairs, Mr Ashdown insisted that Europe could no longer rely on the US to "bail us out every time there's trouble in our own back yard". He called on the West to threaten to use air power against the Serbs over their actions in Kosovo.Reuse content