The Prime Minister offered to appoint two Lib Dems to his Cabinet in October 1997, according to extracts from the diaries published by a Sunday newspaper.
Mr Blair told Mr Ashdown that he could see "two easy people to move out of the Cabinet" at the time according to the extract which does not name the Labour cabinet members.
Menzies Campbell, the Lib Dem spokesman on foreign affairs and Alan Beith, the deputy leader, were to have been appointed in their place, according to the extract.
A statement from Mr Ashdown's lawyers described the revelations as being taken from, "unlawfully acquired" pages and the former Lib Dem leader and his publishers are considering taking legal action over breach of copyright.
Mr Blair reportedly withdrew the offer because he feared a Cabinet rebellion. "But he was really worried about the reaction from his party," according to Mr Ashdown's diaries.
The extract did not identify the two "easy people" but they are believed to have been David Clark and Gavin Strang.
It was reported last night that senior cabinet colleagues including John Prescott, the Deputy Prime Minister, Jack Straw, the Home Secretary, and Gordon Brown, the Chancellor, were all unaware of the offer. All three senior ministers are known to oppose coalition with the Lib Dems.
A minister reportedly said: "This goes far further than the sort of co- operation which we assumed Tony was talking to Ashdown about. Prescott will go ballistic when he hears.
"The Cabinet was never told that a formal arrangement was being discussed and there will be considerable surprise."
The diary is said to record a meeting which allegedly took place at No 10 on 21 October 1997, involving Mr Blair, Mr Ashdown, Peter Mandelson, the current Northern Ireland Secretary, Lord Jenkins, the Lib Dem peer and Jonathan Powell, Mr Blair's chief of staff.
It reportedly showed the Lib Dem leader was urged to tone down his party's attacks on the Government. Mr Ashdown allegedly replied: "Until we join with you, you cannot remove from us all grounds to be the opposition."
Mr Ashdown recently claimed there were two occasions after Labour's election triumph when the Lib Dems might have formed a coalition with the Government. A Liberal Democrat spokeswoman declined to deny the latest report, saying: "It's public knowledge that Paddy Ashdown has already revealed on the record that he had discussions with Tony Blair about the possibilities of coalition."
Downing Street played down Mr Ashdown's account as "a mix of wishful thinking and political gossip". A spokesman added: "The Prime Minister has always made it clear that he believes in co-operation between the parties but there are no plans to put Liberal Democrats in the Cabinet."
Mr Ashdown, speaking from Montenegro during a fact-finding tour to the Balkans, said he had not given permission for the minutes to be published.
It was reported last night that the revelations have harmed the commercial prospects of Mr Ashdown's diaries, which were to have been published in two volumes, the second of which was to contain the more sensitive material.Reuse content