Tony Blair was on course to win a third historic victory today, but with a much reduced majority.
Both the Conservatives and Liberal Democrats were set to make gains across the Midlands, as the votes were counted last night.
Even before the declaration of the result, the Liberal Democrats said they had seized Birmingham Yardley from Labour. The seat was previously held by former Education Secretary Estelle Morris.
The result in Birmingham Edgbaston, which Labour had been confident of holding despite a strong Tory challenge, appeared to be extremely close, according to officials at the count.
Exit polls and early results suggested Labour's majority - 160 before the election - would fall by between 60 and 100.
Even a reduced majority would be an historic achievement for Labour, which has never before won three elections in a row.
But former Cabinet Minister Clare Short, MP for Ladywood, said she hoped the loss of a significant number of seats would force Mr Blair to change his style.
She said: "If there was a little more discussion, and respect for Parliament and all the different opinions in the Labour Party it might improve the quality of the Government. So, a reduction in the majority - but still a reasonable majority - that might be good for our Government."
Labour's Estelle Morris, former Birmingham Yardley MP and Education Secretary, insisted Mr Blair would not change direction. She said: "It means we can carry on with the reforms we have been doing." And John Reid, the Health Secretary, insisted Labour had been "hugely successful" in winning a third term, regardless of the majority.
The controversy over postal voting was re-opened last night as it emerged 59,000 people in Birmingham had applied for postal votes - but only 40,000 had actually used them.
Lin Homer, chief executive of Birmingham City Council, said she had no idea why 20,000 postal votes had gone unused.
Early West Midlands results to be announced included Wolverhampton South East, Wolverhampton North East and Dudley North, all of which were held by Labour with reduced majorities.
The Conservatives held on to their Birmingham stronghold of Sutton Coldfield.
If Labour wins the national poll, Mr Blair is expected to announce a Cabinet reshuffle before Monday.
Gordon Brown will keep his job as Chancellor after giving the Labour leader his full support throughout the campaign and David Blunkett, the former Home Secretary, will return to the Cabinet, but there are expected to be few other changes.
Mr Blair has insisted he plans to serve a full third term which, in practice, means at least three and a half years.
But a relatively poor result will provide encouragement to his enemies within the Labour Party who want him to quit much sooner.
Supporters of Gordon Brown, the most likely successor, were quick to insist that Labour's predicted victory owed as much to the Chancellor as to Mr Blair.
A Labour Government will push forward with legislation including a new ID Cards Bill, A Violent Crime Reduction Bill and a Work and Families Bill, extending maternity leave and pay.
Senior Conservatives were calling for Michael Howard to stay on as Tory leader, as early results suggested his party may have done much better than many expected.
Tory chairman Liam Fox said the party had fought a " disciplined" campaign, avoiding the splits of previous years.
He added: "I think the party's campaign has been the most professional and disciplined we have had for a very long time."