Damien Egan has won the by-election in Kingswood, overturning a majority of more than 11,000.
The result comes during a bruising night for the Tories who are braced to lose Wellingborough also.
The result will add to the pressure on Rishi Sunak, coming a day after it emerged the UK had entered a recession at the end of 2023.
It also means the Conservatives have suffered more by-election defeats in this Parliament than any previous government since the 1960s, surpassing the eight defeats experienced by John Major between 1992 and 1997.
Victory gives Labour a much-needed boost after a difficult week following a U-turn on its flagship pledge to spend £28 billion a year on green projects and an antisemitism row that forced the party to drop its candidate for the Rochdale by-election on February 29.
Counting continues in Wellingborough, the other by-election held on Thursday, where Labour MP Toby Perkins said the party was “excited and expectant” at the idea it could overhaul a Tory majority of 18,540.
Labour overhauled the Tory majority
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The by-election in Wellingborough comes after former Tory MP Peter Bone received a six-week suspension from the Commons when an inquiry found he had subjected a staff member to bullying and sexual misconduct.
The selection of Bone’s partner, Helen Harrison, as the Conservative candidate in his former seat has been a source of controversy, with Prime Minister Rishi Sunak last month declining to say whether he would be campaigning for her.