Oldham East by-election: Liberal Democrats suffer as Labour holds seat - Telegraph.co.uk

Liberal Democrat leader Nick Clegg played down the significance of the defeat, blaming the government's programme of painful spending cuts.

In a statement, Mr Clegg said: "It was always going to be a big ask to take this seat from Labour, given the circumstances. We are undertaking some enormously difficult decisions because Labour left Britain's economy in a mess and we are now forced to clean up after them.

"By 2015, I hope that the people of Oldham and Saddleworth will see, like everyone else in the country, that the difficult choices we made were the right ones and that Britain is in better shape than when we entered Government."

Mr Clegg is due to meet senior Lib Dem colleagues this morning to discuss the election result, although aides denied it was a crisis meeting.

The by-election was caused by the court's decision to rule that Phil Woolas, the sitting Labour MP had made incorrect accusations about his Lib Dem opponent Elwyn Watkins.

There had been expectations of a local backlash against Labour because of the circumstances, but the Lib Dems have slumped dramatically in the polls since entering the Coalition and abandoning their pledge to oppose tuition fee hikes.

Despite finishing just 103 votes behind Labour in last May's general election, the Lib Dem candidate Elwyn Watkins polled 11,160 votes to Mrs Abrahams' 14,718. Tory Kashif Ali came a distant third with 4,481.

At the 1997 general election Mr Woolas won by a majority of 3,389 on much higher turnout of nearly 74 per cent, compared to 48 per cent this time.

Andy Burnham, the shadow education secretary who oversaw the Labour campaign, contrasted Mr Miliband's decision to visit the constituency three times with Chancellor George Osborne's choice of festive holiday.

"While Ed was in the hills in Saddleworth, Tory ministers were on the skiing slopes in Klosters," he said.

"It's a good win for Ed and Labour but we are not getting carried away.

"What we have seen here is people are not happy with the way this government is going about its business."