I will end two-party nation - Clegg

As David Cameron made a fresh bid to woo the party's voters, Mr Clegg said his party found itself on "home soil" on all the key issues and should aim higher.

And he set out a number of policy proposals - including a massive boost to school spending, more local courts and community-led punishments and a dedicated anti-terror police force - he said would help achieve the breakthrough.

Mr Clegg, whose only declared challenger in the race to succeed Sir Menzies Campbell is environment spokesman Chris Huhne, was setting out his stall in a speech in London.

He said: "My ambition is simple: to lead the Liberal Democrats so that by winning this battle of ideas we can transform Britain into the liberal nation I believe we are by temperament, by instinct, by tradition.

"This can only happen if the stifling deadlock of two-party politics in Britain is broken for good. I believe this is a realistic goal within the next decade."

He dismissed attempts by Labour and the Conservatives to modernise their parties' "outdated philosophies" and said liberalism offered a "vital and compelling alternative".

Mr Cameron said earlier that his "liberal conservative" party offered a "very good vehicle" for former Lib Dem backers.

But Mr Clegg insisted it was his party which was best placed to deal with the main issues facing the country: "empowering individuals, extending opportunity, balancing security and liberty, protecting the environment, engaging with the world".

Mr Clegg, who is the runaway favourite among bookmakers to be elected party leader in December, also named 25 fellow MPs - out of 61 - who have backed his campaign so far.