"I want to be prime minister", was the headline on the front page of the Times beneath a picture of a smiling Nick Clegg, on the day before the
final leaders' debate. The line itself is not new. As long ago as May 2009, the Lib Dem leader told my colleague James Macintyre, in a New Statesman interview: "I mean, look, you're probably going to chuckle, but - I mean, I want to be prime minister."

No one is chuckling any more. Two weeks on from that first televised debate, which transformed this campaign, the Liberal Democrats remain in second place in most polls and Clegg is now this country's most popular politician. "When Nick says he wants to be PM, he means it," one Lib Dem frontbencher tells me. "He is steely, ambitious and determined."

He has also articulated and exploited a new national mood. "The public is chronically anxious about this uncertain period in which we live," says one cabinet minister, "and a voice has been found for the anxiety in Nick Clegg."

The question is: how far and for how much longer can Clegg ride this yellow wave? It would be wise not to underestimate the ambitions of Britain's "third party". "Our long-term aim is to replace Labour as the principal progressive party in this country and, in essence, go back to a pre-Labour age. That's where the centre of gravity is inside the party," says one Lib Dem insider.

Lib-Lab not Lab-Lib

But isn't this fantasy politics? "It is a realistic aim," he says, citing the dwindling number of "hardcore" Labour supporters and the decline of the trade unions. Another, more circumspect Lib Dem frontbencher I spoke to concedes that such talk might sound "hubristic", but readily acknowledges that his party wants to be considered a "player" in a "three-party system".

Thus, the incessant chatter about a hung parliament and whether or not the Lib Dems would prop up Labour in power misses the main point. Clegg harbours genuine prime ministerial ambitions - and the Lib Dems see this election as a potential first step towards replacing Labour as the party of choice of most progressives. In this reading of events, Clegg's dismissal of the Prime Minister - "You can't have Gordon Brown squatting in No 10" - is part of a deliberate and wider strategy to delegitimise Labour and its leadership. The Lib Dems have set their sights on a goal much higher than being junior partners in a Lab-Lib coalition. They want to leapfrog Labour and seize the top jobs for themselves.

“If we come first in the popular vote and Labour come third, then Nick would have to be PM," says the Lib Dem frontbencher. He has a point. The public would tolerate nothing less. However, Lib Dem strategists and sections of the press might be in danger of overstating the depth of Labour's decline - or assuming, in Clegg's words, "a two-horse race between the Conservative Party and the Lib Dems". So, too, might a handful of disillusioned Labour figures from the right and left of the party - including one Blairite ex-cabinet minister who says he is convinced Labour will come third. Another tells me: "Without Brown we would have won . . . [and] if we don't behave intelligently, then the Liberal Democrats could very well replace us." And, on the left, Neal Lawson, chair of the pressure group Compass, writes: "My tribe is dying."

Is it? Labour has indeed fallen to new lows in the polls, forced into third place for the first time since the days of the SDP in the early 1980s. Contrary to conventional wisdom, however, reports of Labour's demise have been much exaggerated. One party strategist tells me that its candidates are reporting more activists volunteering than in 2001 and 2005. And the Electoral Commission revealed that Labour raised £1.5m in donations in the second week of the campaign - only £700,000 behind the Tories' total during the same period. Meanwhile, an Ipsos MORI poll of marginal seats showed that the Conservatives had achieved only a 5 per cent swing away from Labour - suggesting that we are still heading for a hung parliament - and that Labour's relative position had not changed since the start of the campaign.

It is also safe to say that the party's vote share in its north of England, Scottish and Welsh strongholds will hold up, in spite of the Lib Dem surge and the Conservative deputy chairman Lord Ashcroft's bankrolling. "There is a sense of dislocation between what Labour candidates are feeling on the ground and what we're seeing in the polls," says a senior Labour figure. "The national polls don't take into account regional variations, the incumbency factor or the fallout from expenses."

The truth is that national polls are of little value in such a close campaign - in recent days they have tended to show the three parties bunched within 5 or 6 points of each other. Bearing in mind the various margins of error (plus or minus 2 or 3 per cent), it is difficult to state with confidence who is ahead or behind. It would be foolish to rank the three main parties in any particular order when it is possible that, technically, any one of them could be in the lead.

Major league

Inside Labour's Victoria Street HQ, much focus, therefore, is on the 1992 general election, when an unpopular prime minister - John Major - defied the polls and the pundits to win a historic fourth term for his party. "To me, this election looks remarkably similar to 1992," says one cabinet minister. "Labour then, like the Tories now, thought it was on course for victory. Major had been written off by the media and, at this stage of the campaign, Neil Kinnock was having his Sheffield rally."

As in 1992, the record number of undecided voters - including one in three Lib Dem supporters who say they might switch to another party before 6 May - could make all the difference in the final days of this campaign.

So, the race is not over. Because of the leaders' television debates, Cleggmania has galvanised British politics. But it would be a mistake to write off the Labour Party - or, indeed, Gordon Brown. Just to have remained in contention in the wake of the worst recession of our lifetimes, and after 13 years in office, suggests the party is much more resilient, and its core support deeper, than some even inside Labour might have assumed.

This election shouldn't have been so close. That it is close reminds us of why this is, above all else, not a "Conservative moment".