David Cameron should set up a liberal party allied to the Conservatives, one of his ministers has suggested.
Planning minister Nick Boles said it would attract liberal-minded voters at the next general election.
Mr Boles was an advocate for a pact with the Liberal Democrats before the coalition was formed in 2010.
But, in a Westminster speech, he said the Tories' coalition partners had become a "statist party of the soft left" in a "principle-free zone".
He suggested the Conservatives should revive the National Liberal Party, an organisation that was affiliated to the party from 1947 to 1968.
Sitting MPs would be encouraged to sign up, he said, in an effort to win over voters who might baulk at the idea of calling themselves Conservative in crucial marginal seat fights with the Liberal Democrats.
Mr Boles said he had been "misguided" to float the idea previously of a formal deal with the Lib Dems, saying Deputy Prime Minister Nick Clegg was engaged in "a desperate attempt to position himself for coalition with a deeply illiberal Labour Party after the next election".
This would make the Lib Dem leader a "principle-free zone", he said, adding that some of his MPs, such as David Laws and Jeremy Browne, were "proper liberals", but the rest were "a statist party of the soft left".
Mr Boles told a meeting of the Bright Blue group at Westminster: "I did not realise that our coalition partners would do everything in their power to paint us as heartless extremists.
"And I underestimated the readiness of some in the Conservative Party, and the press, to play up to the caricature and thereby fall squarely into their trap.
"Liberalism is now wandering the streets of British politics looking for a new home.
"We must assert our credentials as the most consistent champions of freedom under the rule of law. And we must make liberalism a more explicit and distinct part of our political brand."
Polls showed men and women under 25 were "markedly more liberal" on both social and economic issues, he pointed out, making the traditional Conservative Party an unappealing choice.
Pointing to Lord Heseltine's National Liberal candidacy in Gower in 1959 and that of fellow Thatcher cabinet colleague John Nott in St Ives in 1966, he said: "My question is this: is it impossible for us to contemplate reviving the National Liberal Party, or something like it, as an affiliate of the Conservative Party, which only puts up candidates for election jointly with the Conservative Party?"
Mr Boles's suggestion has echoes of a speech David Cameron gave in 2007.
In it, he said: "I think that the Conservative Party under my leadership is a liberal Conservative Party, will remain one and will campaign as one and will offer a very good vehicle for people who have voted Liberal Democrat in the past to come and join us and say 'right, this is the way to build a stronger country, get rid of a Labour government'."
A Lib Dem source said: "We understand Nick Boles' frustration with some elements of his own party.
"But if he's looking for a sensible party of the centre ground, he's welcome to apply to join the Lib Dems."
For Labour, shadow Cabinet Office minister Jon Ashworth said: "Nick Boles, one of the prime minister's closest advisers, has let the cat out of the bag. David Cameron's so-called detoxification of the Tories has been a sham and his modernisation project is dead and buried."
Asked if Mr Cameron continued to have "full confidence" in Mr Boles, the Prime Minister's official spokesman replied: "He does."