NSW's fledgling Premier, Nathan Rees, admitted that Labor's bruising in the West Australian election was "a very clear lesson" as he unveiled his new frontbench following a weekend of chaos and bloodletting.

"At the end of the day the only people who choose whether I'm in my job, [his deputy] Carmel [Tebbutt] is in her job, all of us are in our jobs, are the people of NSW," Mr Rees said.

But the federal Coalition leader, Brendan Nelson, was also defending his leadership yesterday after the National Party was obliterated in the federal NSW seat of Lyne, and the Liberal Party almost lost Alexander Downer's former safe seat of Mayo to the Greens.

The Prime Minister, Kevin Rudd, insisted his vision for reforming federal-state relations had not been jeopardised by the West Australian Liberals being on the verge of breaking Labor's stranglehold on every state and territory.

The Treasurer, Wayne Swan, said the Liberals were deluding themselves to believe federal factors influenced the WA result but he conceded incumbent Governments were under threat from "unsettled" voters.

Until Saturday, Labor had won the past 23 successive state and territory elections.

Yesterday the WA National Party leader, Brendon Grylls, whose party won a better than expected four seats, held talks with the Labor Premier, Alan Carpenter, about forming a minority government - but today he will hold similar talks with the Liberal leader, Colin Barnett.

Labor was left three seats short of the 30 needed for a majority following a 6pc swing against it.

Labor sources were pessimistic last night about retaining power.

Only five weeks ago, Mr Barnett was headed for retirement before being drafted back to the Liberal leadership, and now he could be premier.

Buoyed by the result in the west, where there is no coalition, the federal Nationals leader Warren Truss flagged his party walking away from the federal Coalition in a bid to survive.