Lib Dem proposal was rejected

They voted against the party leadership at the Blackpool conference, saying they wanted the plans revisited.

One delegate who spoke accused the party of going - as he put it - "where even Margaret Thatcher dared not go".

Trade spokesman Norman Lamb wanted to sell off two-thirds of the delivery service, to allow more investment in the Post Office Counters network.

With mail deliveries being opened up to competition from January, the party proposed carving up shares in Royal Mail between the stock market and employees in a profit-sharing scheme.

Money raised would have been used to reopen 500 post office branches and modernise the service.

'Electorally disastrous'

Trade spokesman Norman Lamb urged delegates in Blackpool to back the "serious, credible and...liberal solution".

"Just think how ridiculous we would look if we go back to think about this for another year," he said.

I totally understand people's anxieties about this whole issue; it's a very emotive subject Norman Lamb Lib Dem trade spokesman

"Full liberalisation takes place in just over three months' time. As a spokesman I need to be able to go out and say what the Liberal Democrats believe in."

But Lord Greaves, a party spokesman, said the rushed proposals would be "electorally disastrous" for the party.

He said: "I'm afraid that in my view this qualifies as being the kind of back of a fag packet stuff we've been warned against.

"We need a policy which is clearly costed and has had enough debate in the party.

"It would be electorally disastrous to implement this now."

'Liberal plan'

It was the second defeat for the party leadership after Monday's rejection of plans to cap the EU's budget.

Speaking afterwards, Mr Lamb said he thought he could still win over delegates.

"I totally understand people's anxieties about this whole issue; it's a very emotive subject. I remain hopeful we can persuade people this is a coherent and liberal plan."

These proposals are not just a back door route to full privatisation, they are a trap door to plummeting levels of service and should be ditched at once Billy Hayes Communication Workers Union

Asked about whether the two defeats were a sign of unhappiness with the party leadership, Mr Lamb said: "People were voting on the issues; this was not part of a grand plan to stuff one on the leadership."

The Lib Dems estimate Royal Mail to be worth about �5bn. The plan was to invest �2bn in the Post Office network, use �1bn to cut the employee pension fund "black hole", with much of the rest funding a trust to give employees a stake in the firm.

It also proposed a pledge to ensure Royal Mail continued to deliver letters to all parts of the country for the same price.

Billy Hayes, general secretary of the Communication Workers' Union welcomed the delegates' rejection of the plans.