A senior Conservative official has denied reports that he believes the party cannot win the next general election.

Lynton Crosby, the Australian strategist, has denied reports in the Times that he is at the centre of a power dispute at Conservative campaign headquarters.

According to the paper, Crosby is said to have contradicted advice from Lord Saatchi, the party co-chairman, who believes the Tories should fight to win, or at least deny Labour a majority.

Crosby was said to have told party leader Michael Howard that he should concentrate on an attempt to increase his strength in parliament by 25 to 30 seats.

"It is terrible for us out there," a senior Tory source told the Times. "The polling suggests at best we can win up to 25 seats.

"But Saatchi is telling Howard that the election is all to play for and that we should fight to win the 165 seats required to give us a majority.

"The fact is that in the marginals we are actually losing ground. Crosby is saying it is madness to fight to win 165 seats when we can't win 65."

But following the report, Crosby issued a statement saying there is "absolutely no truth in the claim by the Times that I do not believe the Conservatives can win the election".

"I have never had any such conversation with Michael Howard and I do not hold that view. I was not given an opportunity by the Times to refute this story," he said.

"The Conservative Party has been making an impact on the issues of lower tax and controlled immigration over the past week, and the Labour Party will be wanting to do all they can to distract attention away from the issues that really matter to people."

Meanwhile, Labour reacted to the story by warning its supporters not to think that the election "is all over".

The party fears that its supporters, many of whom are disillusioned by the Iraq war, could stay at home if they think there is no likelihood of a Tory victory.

Fraser Kemp said: "I know Lynton Crosby is denying he even made these remarks, but the fact is he's got form on this issue," said Labour campaign spokesman Fraser Kemp.

"One of his favourite tactics is to sneak into power by lulling Australian Labor voters in Australia into thinking they need not bother turning out because the Labor party have already won.

"This story fits that bill. I would not be surprised at all if Mr Crosby had never uttered the words but allowed his aides to deliberately brief that he had."