Labour have lost control of four heartland councils and the mayoral race in Middlesbrough by a large margin.
Independent Andy Preston won 59% of the vote to take the mayoral post previously held by Labour.
Labour lost control of Darlington, Hartlepool, Middlesbrough and Stockton Councils, and almost half its seats in Redcar and Cleveland.
Hartlepool Council leader Christopher Akers-Belcher said it showed the "impact of a fractured party".
The party lost five seats, four to independent groups and one to UKIP in Hartlepool, and nine seats in Darlington, where the Conservatives gained five to give them 22 - four short of a majority, but two more than Labour.
In Stockton, Labour lost eight seats compared with the 2015 election, while independents gained six and the Conservatives and Liberal Democrats one each.
Labour's 24 seats leave them five short of a majority, with party group leader Bob Cook saying meetings would be held to decide what to do next.
He said: "Until last night we thought we were going to be quite safe.
"It's definitely disappointing because we lost some good councillors that have given lots to their wards.
"It's a disappointment for them and a disappointing day all round."
In Middlesbrough, Labour lost 13 seats while the independents gained 14, leaving them one short of the majority.
In Redcar and Cleveland, where 30 seats are needed for a majority, Labour saw its 28 seats reduced to 13 while independents gained nine and UKIP and the Liberal Democrats two each.
Eighteen of the council's seats are now held by independents, 15 by Labour, 13 by the Liberal Democrats, 11 by the Conservatives and two by UKIP.
Labour council leader Sue Jeffrey said it had been a "disaster" for the councillors who lost their seats, but the loss was because of "Brexit and national politics", not local issues.
By BBC Tees political reporter David Macmillan
Labour has suffered shocks before on Teesside: the Liberal Democrats taking Redcar from them in 2010, Tory Ben Houchen beating them to become Tees Valley Mayor and, of course, Hartlepool's famous monkey mayor.
But to be so heavily rejected right across the region on the same day is unprecedented.
There is no doubt national issues were a huge factor, with Brexit at the heart of many doorstep conversations.
But though the Labour council leaders passionately defend their record over the last four years, particularly dealing with the impact of drastically falling budgets, there is surely little doubt that large sections of the Tees Valley public have lost faith with the party locally too.
New mayor Mr Preston said he was confident of delivering his election pledges.
"Some things will happen very quickly, some will take a bit longer," he said.
"I'm extremely optimistic about my ability to unite the fantastic assets of this town; great people, great energy, fantastic businesses and awesome communities, and bringing them together to create fantastic opportunities for everyone."
He also paid tribute to his team of volunteers who "delivered over 100,000 leaflets in every street of the town in all kinds of weather".
"It's been a people's movement and I feel very proud to be their representative," he said.
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