Gordon Brown promised "real and serious changes" from his Government in 2008 as a senior Cabinet ally warned that Tory messages were "resonating" with voters.
The Prime Minister used his New Year message to say his top priority would be steering the UK through a period of global financial turbulence.
But he also pledged to press ahead with public service reforms in what would be "the decisive year" of the decade in shaping the country's future.
Conservative leader David Cameron used his own message to put his party on a year-long election footing to defeat Mr Brown's "hopeless and incompetent" administration.
And Justice Secretary Jack Straw conceded the Opposition were proving appealing to the electorate and warned that Labour needed to show "clear progress" if it was to stay in power.
The two party leaders' pronouncements came as a new opinion poll showed a Labour revival, although it still remained five points adrift of the Conservatives.
Mr Brown, who mentioned neither his rivals nor the series of crises which have beset his Government in recent months, said the next year would also see "measurable changes" in public services, a strong defence of the Union and tough decisions on issues such as nuclear power.
Raising the education leaving age to 18, completing pension reform, cleaning hospitals and extending GP surgery opening hours would all be tackled, he said.
"For Britain, 2008 will be a year of real and serious changes," he said.
"A year for stepping up major long-term reform to meet challenges ranging from globalisation and global warming to the great unfinished business of social reform in our country," he added.
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