The Deputy Prime Minister is furious over the reports that he is being blocked by Downing Street and Tony Blair's official spokesman yesterday denied the claims as "garbage".
The No 10 spokesman revealed that Mr Blair was shown the reports while on his flight to Belfast yesterday morning and authorised a total denial to be issued with an unusually strongly worded commitment to make it clear there would be no U-turn on transport policy.
The Independent has learnt that the long-awaited integrated Transport Bill due to be published next week will show that Mr Prescott has secured the Prime Minister's support to go ahead with congestion charging and levies on company parking spaces in towns.
In a significant change, Mr Prescott has ensured that local authorities - who will levy the charges - will keep 100 per cent of the revenue, rather than the Treasury, for 10 years after the start of the charging schemes to invest entirely in local public transport improvements.
Mr Prescott has clawed back the ground lost when Treasury officials watered down his transport White Paper last year by writing in a clause to allow the Treasury to keep some of the revenue from the charging schemes. There were claims at the weekend that this was done by Gordon Brown, the Chancellor, but Mr Prescott's friends said Mr Brown has no quarrel with Mr Prescott. "It was lower down the food chain, and it has been changed," a source said.
One of Mr Prescott's policy's critics, Geoff Norris, a member of the No 10 policy unit in charge of transport, who warned Mr Blair against being seen as "anti car", is being moved to a trade and industry portfolio, to be replaced by Brian Hackland, an official from Mr Prescott's own department.
Mr Prescott's decision to step down from the party's leadership campaign team (LCT) may be seen by his critics as an admission that the Government has an uphill task in selling its public transport policy to the voters.
His role as head of the LCT is likely to go to Ian McCartney, the Trade and Industry in Mr Blair's forthcoming July reshuffle, leaving Mr Prescott more time to concentrate on delivering Labour's promises in his Department for the Environment, Transport and the Regions.
"As the general election approaches, John will be campaigning as he always does, but he needs to be less involved with the LCT," a party source said.
The claims of a rift with Mr Blair were sparked by reports that the Prime Minister had ordered the M4 bus lane experiment to be scrapped after being stuck in traffic into London. Official figures released yesterday by the Highways Agency showed that the bus lane was proving a success. Journey times for cars have reduced by 1.5 minutes and 2 minutes at the morning and evening peak periods, although incidents caused quicker tailbacks. Buses cut their times from 10.1 minutes to 6.9 minutes.