Blair's reshuffle angers Brownites

Tony Blair was finishing his Government reshuffle today amid rising anger among Gordon Brown's supporters.

Ms Kelly was tipped to become deputy to Alan Milburn, who was brought back into the Cabinet by Mr Blair to run Labour's general election campaign and oversee Government policy.

That placed a serious question mark over the position of Douglas Alexander, Mr Brown's former protegé ·ho lost two of his key roles to Mr Milburn last night.

Mr Alexander was said to be negotiating for another senior position after being replaced by the former Health Secretary as election coordinator and government member on Labour's ruling national executive.

In what Blairites presented as a battle for the soul of a third-term Labour government, Mr Milburn was given a central role that suggested he was being groomed as a natural successor to Mr Blair. The appointment of Alan Johnson to replace Andrew Smith as Work and Pensions Secretary was also projected as a victory for Number 10 over a part of Whitehall long seen as part of Mr Brown's fiefdom.

The "limited" reshuffle will be completed today, with Mr Johnson's post as Higher Education Minister set to be filled and other junior level changes having to be made.

No 10 said that Mr Milburn had a raft of jobs that put him at the heart of the Government. He will become chairman of the party's election planning group and a member of the election strategy group chaired by Mr Blair.

After bargaining hard with the Prime Minister, he was also given a wide role over Government policy, supervising the work of the Number 10 policy directorate and strategy unit. He will " coordinate the development of policy across Whitehall," an official said.

A senior Government source emphasised that the party leader had always chaired the general election strategy group, contrary to claims from the Brown camp that their man had occupied the post in 1997 and 2001. The reshuffle was seized on today by the Tories as creating a cabinet of "Two Chancellors" with Mr Milburn's courtesy title of Chancellor of the Duchy of Lancaster sure to be used to needle Mr Brown. Mr Milburn's friends joked that they would in future call him "The Chancellor". A Treasury spokesman said that Mr Brown was "relaxed" about the changes.

"Gordon is Chancellor of the Exchequer. He's never had a title on the election campaign. He's a member of the General Election strategy group and that is chaired by the Prime Minister."

But friends of Mr Brown were more vitriolic, with one warning that "there could be carnage ahead". "There will be rows over everything. Milburn will forever be trying to portray Gordon as the safety-first merchant."

Some even suggested that Mr Brown would be excluded for the first time from the election campaign itself, a charge denied by a Labour spokesman. Others questioned whether Mr Milburn's roles would have any real clout. "It seems a mixture of lots of people's jobs, but the spin surrounding it is confrontational," said one. Another Brown ally doubted whether the former Health Secretary had any experience of running an election campaign.

But as both camps engaged in a frantic spinning operation, friends of Mr Brown claimed that he persuaded the Prime Minister not to announce he was standing down earlier this year.

Reports today claimed that Mr Blair had told colleagues he was ready to " preannounce" this May that he would step down. Mr Brown is said to have advised the Prime Minister against the idea, telling him that going so early would create a "lame duck" premiership and open the party to in-fighting. But it appears that Mr Brown favoured a swift leadership contest that would install him soon after this year's October party conference.

In another sign of tension, Deputy Prime Minister John Prescott is said to be furious at the Chancellor's allies for overplaying their hand in recent days.

Former chief whip Nick Brown angered Blairities by seizing on the resignation of Mr Smith as evidence of a vicious briefing campaign by Number 10.