Mr Chavez's rhetoric put him centre stage at a summit in Vienna as he claimed that "neoliberalism has begun its decline and has come to an end" and that "a new era has begun in Latin America."
The comments raised the temperature following the decision by Bolivia's new President Evo Morales - who is an ally of Mr Chavez - to nationalise his county's oil and gas. Venezuela is increasing taxes on foreign investors in its massive energy sector.
At an EU-Latin America summit attended by Mr Blair, the Venezuelan president argued: "There is a big ideological confrontation in the region, some defend the big project of Washington that has smashed our people. We want a profound change, a new socialism and we are going to debate: do we want socialist or capitalism? We say socialism."
He said Mr Morales was a descendent of the Incas, "oppressed people who are rising", adding: "They are rising with peace not weapons. Europe should listen to that".
Mr Blair responded by urging the two Latin American nations not to act irresponsibly. He argued: "What countries do in their energy policy when they are energy producers like Bolivia and Venezuela matters enormously to all of us. My only plea is that people exercise the power they have got in this regard responsibly for the whole of the international community." Mr Chavez will be in London tomorrow but, unlike on his last visit to the capital when he met Mr Blair and had an audience with the Queen, he has not requested meetings with ministers. Instead he will attend a speaking event with the mayor of London, Ken Livingstone.
The stance taken by Mr Chavez and Mr Morales provoked criticism both from European and Latin American leaders in Vienna amid fears that it would destabilise global energy markets pushing up prices. The Austrian Chancellor, Wolfgang Schu[uml]ssel, said that nations had to answer the question whether they wanted open markets and foreign direct investment or not, adding that experience showed that "open market societies are better in their performance than closed, restricted structures."
The Mexican President Vicente Fox said that the populism in Latin America is "one of the big obstacles to growth and development", offering people "false" hopes of escaping poverty.
And the European Commission President Jose Manuel Barroso said that Ê"we are a Europe against populist tendencies." Ê
Behind the scenes diplomats were working to try to defuse the crisis over energy in Latin Amercia, where European firms including British Gas, British Petroleum and Spain's Repsol have massive investments.
Representations over the nationalisation led to Mr Morales sending a conciliatory letter to Spain's foreign minister, Miguel Angel Moratinos. Mr Morales's rhetoric has also alarmed Brazil, which has a massive stake in the Bolivian energy market. On Thursday Êthe Bolivian president claimed that Brazil's state-controlled oil company Petrobras had acted illegally. The Brazilian Foreign Minister Celso Amorim said: ""We are perplexed by what (he said). If you want to interpret 'profoundly perplexed' with a term like 'indignation,' that would not be far from the truth." Ê
Meanwhile Venezuela has upset some neighbours by criticising countries that have signed trade deals with the US. ÊMr Chavez has held up plans for EU-Andean trade talks by saying it will quit the South American group in protest.
Mr Blair held talks with the German Chancellor, Angela Merkel, and the Brazilian president, Luiz In‡cio Lula da Silva, in an effort to break the deadlocked on stalled global trade negotiations. Mr Blair canvassed the idea of holding a special meeting of world leaders to try to end the blockage, Downing Street said.
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