Tony Blair has returned to Downing Street, but he sees his majority sharply reduced from 167 in 2001 to 66.

The polls showed the Tories had a net gain of 30 seats, while the Lib Dems won nine more seats.

Counts in 21 seats are still outstanding.

Mr Blair is the only Labour leader to have won three elections in a row but his margin of victory is less than half what it was in the Labour landslides of 1997 and 2001 - and he has the lowest share of the vote for a ruling party in modern times.

The Conservatives mounted a strong challenge but their overall share of the vote will be similar to 2001.

The Lib Dems have made significant inroads into Labour majorities and it is expected that they will have 60 seats.

Mr Blair, who turns 52 today, said he appreciated the Iraq war had been a "divisive" issue for the country but insisted that people now wanted to "move on".

Watched by his wife Cherie and four children, he told reporters: "The great thing about an election is that you get out and talk to people for week upon week and I have listened and I have learned.

"I think I have a very clear idea of what the British people now expect from this government for a third term."

In a swipe at the Tory campaign, Mr Blair said he had learned that Britons were "tolerant and decent" people who had not wanted immigration turned into a "divisive issue".

"But they do believe there are real problems in our immigration and asylum system and they expect us to sort them out and we will do so," he said.

People had also signalled their dislike of the lack of respect in the classroom, on streets and in town centres on Friday and Saturday nights, he said.

More to follow.