Tony Blair has told cabinet colleagues not to "panic" about the revival of Tory hopes under their new leader, David Cameron.
At a cabinet meeting, the Prime Minister and senior colleagues agreed they should not launch personal attacks on the Tory leader. Ministers said his honeymoon period with the press would come to an end when he had to set out detailed policy commitments.
"The Liberal Democrats have set fire to their own house and are now running round in a panic," a senior Labour official said.
"The Cabinet agreed that it was best not to panic because of Cameron. The main thing is that we don't make the same mistake as the Tories did when New Labour was launched by attacking Blair's 'Demon Eyes'.''
Cabinet ministers were given private polling results showing that Mr Blair still has a long lead over Mr Cameron, and that the Tories have failed to open up a gap over Labour.
"We still have a big lead over the Tories on security and law and order," the source said. Labour MPs were e-mailed with a briefing note from the Cabinet saying they should not surrender the centre ground to Mr Cameron.
"The Cabinet as one agreed that the Labour Government's agenda is in the ascendancy and that we must continue to govern from the progressive centre and never yield the centre ground," said the note.
"The discussions touched on the new landscape in British politics. There was a clear consensus that in this changing environment the Government had to both stick to its core New Labour roots while looking to continually renew and refresh ourselves in government.
"Ministers agreed that this meant a clear focus on securing our future prosperity in a changing world while protecting local communities from threats at home and abroad. But it also meant ensuring that through the collective effort of government action we were constantly developing policies which empower individuals to take greater control over their own lives and opportunities."
Ian McCartney, the chairman of the Labour Party, will reinforce calls for party renewal at the weekend, when he makes his return after a serious illness, with a policy forum in Nottingham. For the first time it will be open to selected members of the public.
The former Conservative deputy prime minister Lord Heseltine said that Mr Cameron had the Labour leadership caught "like rabbits in the headlights".
Mr Cameron's appointment had helped to oust the Liberal Democrat leader Charles Kennedy and that Tony Blair was his next target."I think David Cameron's leadership has transformed the political scene. In terms of the other leaders, there is one down and one to go.
"Kennedy is out, as the Lib Dems panicked about Cameron, and now Labour is the next target."