Unite union general secretary Len McCluskey warned Labour yesterday to drop its austerity policies or face election defeat and the possible establishment of a new workers' party.

Mr McCluskey urged Labour leader Ed Miliband to adopt radical alternative policies that would give people hope.

But he added bluntly: "If it is a pale shade of austerity, then I believe Labour will be defeated at the next election."

He was asked at a lunch with parliamentary journalists whether he could envisage Unite disaffiliating from the Labour Party.

He replied: "Could I ever envisage a rules revision conference voting to disaffiliate from Labour? I could do. And that is a challenge to Ed Miliband."

Mr McCluskey added: "I believe the Labour Party is at a crossroads, a watershed."

Labour consistently had to demonstrate that it represented the views of ordinary working people, the people who created the party at the beginning of the last century.

"If we put forward hope, then I believe Labour will get back into power."

He praised Mr Miliband's stance on energy prices, building a million new homes and a British investment bank.

But he then urged massive investment in jobs, pointed to huge public support for public ownership of the railways and also suggested public ownership of energy companies.

"Unless Ed and the Labour leadership demonstrate that they are on our side ... then I can envisage a debate taking place.

"If Labour lost the election in May 2015, I fear for the future of the Labour Party."

Mr McCluskey stressed that the question of disaffiliating from Labour was not on the agenda in the run-up to the election.

But in answer to a journalist's question about proportional representation, the Unite leader replied: "If a new workers' party emerged at some time down the road, you may well find that I am in favour of PR."

Asked about Prime Minister David Cameron's repeated attacks on Unite and other unions, Mr McCluskey declared: "What Ed Miliband and the Labour leadership should do is to stand up and be proud of the unions.

"Ed Miliband is a member of Unite. He should be proud of it - not run away from it."

Mr McCluskey was the first trade union leader for many years to address a parliamentary press gallery lunch.

He bemoaned the decline of parliamentary reporting and complained that ordinary people were being increasingly shut out of Parliament and the policy debate.

Millions of people in Britain felt that the "greedy capitalists" in the City of London had ideologically captured not just one political party but every political party.

In a further shot across the bows of the Labour leadership, he proclaimed that SNP leader Alex Salmond was "charging up Labour's left wing and is seen by many people as more radical."