The report into the racist murder of Stephen Lawrence has labelled London's police force "institutionally racist" and condemned officers for "fundamental errors".

Home Secretary Jack Straw welcomed the long-awaited findings and promised a new era and sweeping judicial reforms - but he said Metropolitan Police chief Sir Paul Condon should stay.

Stephen's mother Doreen Lawrence said the report only "scratched the surface".

She added: "Black people are still dying on the streets and in the back of police vans."

Sir Paul admitted the report had brought "shame" on his force - but he refused to resign.

He said he now accepted the definition of "institutional racism" in the report.

It defines the term as "the collective failure of an organisation to provide an appropriate and professional service to people because of their colour, culture or ethnic origin".

Stephen Lawrence: Nobody has been convicted of his murder

Sir Paul said he would respond to the report by bringing in random testing for racism, a rapid response murder inquiry force and a research programme looking at how to improve the police.

The chief commissioner said: "By the time I leave the Met next January I expect us to have demonstrated significant progress on all fronts."

He said he would continue to try to prosecute Stephen's killers: "I have never given up hope."

But Stephen's friend who was with him during the attack, Duwayne Brooks, demanded Sir Paul do the "honourable thing" and quit.

"When Mr Condon took up the job in 1991 he said he would eradicate racism," he said. "Today is 1999 and racism is still here."

Race Relations Act extended

Stephen, 18, was fatally stabbed by white youths at a bus stop in south-east London in 1993. Nobody has been convicted of the murder.

The report backs his family's insistence that "institutional racism" and police incompetence wrecked chances of securing justice in the case.

The home secretary said the Race Relations Act would be extended to cover the police - one of the report's 70 recommendations.

He also said he had asked the Law Commission to consider giving the Court of Appeal powers to permit prosecution after acquittal if new, viable evidence was presented.

Mr Straw's response to the report followed Tony Blair's promise during Prime Minister's Questions of a "fundamental shift in the way British society deals with racism".

Five suspects appeared before the inquiry but said little

"The publication of today's report on the killing of Stephen Lawrence is a very important day in the history of our country," Mr Blair said.

"It will certainly lead to new laws but more than that it will bring a new era of race relations."

Stephen's parents, Doreen and Neville Lawrence, watched from the gallery as the prime minister praised their dignity.

He added: "This is about the whole of British society, the public services within it and what we all must do to make sure these appalling events lead to a change in race relations within our society."

Conservative leader William Hague said everyone should share "shame and disgust" that Stephen's murderers have not been brought to justice.

But he added: "To condemn every police officer in this country as racist would itself be prejudiced and wrong."

The inquiry, headed by Sir William Macpherson, heard that Metropolitan Police officers had not followed up leads. A senior officer even revealed he had not fully understood the grounds for an arrest.

An internal Met inquiry into its handling of the crime had concluded that no grounds existed for concern.