As the popularity of the two main parties falls, Lib Dem stock has never been higher in the political marketplace, Charles Kennedy has said.

"The prognosis is positive and I am optimistic," the Liberal Democrat leader told his party's MPs.

But he warned the parliamentary party to prepare for media attacks as the Liberal Democrats move "centre stage".

Despite criticism that the Lib Dems have been outflanked by the Tories, and buoyed by recent opinion polls, Kennedy believes the only way is up for Westminster's third party.

"This is an important moment for us Liberal Democrats.

"It's just over a year since the election. It's been a year when our stock has risen - while the other parties have either stood still, or in the government's case - fallen back," he said.

Kennedy repeated previous declarations that a new chapter had opened in UK politics - allowing the Lib Dems to take up the mantle of progressive politics against "Large C and small c" conservatism.

"The point is we are now as a party embarking upon a new chapter in British politics where a progressive political force is challenging a large 'C' Conservative Party and a small 'c' conservative Labour government," he said.

Party strategists believe that the next general election will be "fought on the battleground of the proper delivery of public services approached in a transparent and honest way".

Kennedy set out the direction of Liberal Democrat thinking for the forthcoming election - a programme including more decentralisation of public service delivery and greater earmarking of taxes.

But he also looked at his party's "wider strategy", arguing that Lib Dems must take up the mantle of British progressive politics.

"At the next election I want us to be central to the political process. In contrast, conservative instincts within our body politic - whether with a small or a capital 'c' - must be seen to be occupying the sidelines," he said.

And he warned MPs to toughen up, predicting that the price of success in opposition would be rough ride in the media.

"We're not always at our best when we're under attack.

"But if we are to achieve that ambition of moving centre stage, then we're going to have to get used to it," he said.

"If we're serious about ourselves then we can hardly complain when a diligent media get serious about us as well.

"Be ready for it."

Pointing to successful opposition role in the Lords - following recent reversals to the government - Kennedy claimed effectiveness was not about "decibels but delivery".

"It's not about decibels. It's not about knee jerk reactions, or knockabout exchanges in the Commons and it's certainly not about personal attacks on other politicians.

"Effective opposition is about delivery. That has to be our mindset. And for me - it is."

Acknowledging that the Lib Dems were "after all" in coalition with Labour in other parts of the UK, Kennedy targeted the Tories as a danger.

"Lest we forget, a Conservative revival would be difficult for our future fortunes as well as potentially dire for the country as a whole," he said.