Acting Liberal Democrat leader Vince Cable has scorned an offer from David Cameron to cooperate with the Conservatives on political reform.
Mr Cable said the Tory leader was in "cloud cuckoo land" if he expected the Lib Dems to work alongside the Conservative party over decentralisation.
In an article aimed at Lib Dem leadership candidates Chris Huhne and Nick Clegg, Mr Cameron appealed for a "progressive alliance" between the Conservatives, the Lib Dems and the Green party.
Two days before the closely-fought party leadership battle ends with the successor to Sir Menzies Campbell being announced, Mr Cameron pointed towards cooperation on the sustainable communities bill last year as evidence of the two parties working towards shared aims.
But although outgoing leader Mr Cable admitted decentralising power from Whitehall was an important part of the Lib Dem agenda, he rejected Mr Cameron's offer wholesale.
"The Liberal Democrats will continue to work with other parties on issues where we have common ground and can work together in the national interest," he said.
"However, this is not a serious proposal and David Cameron clearly lives in cloud cuckoo land."
In his article Mr Cameron had said increased cooperation between the opposition parties was a "key aspect" of his ambitions.
"I've always believed that political parties, even though they may have serious disagreements over many aspects of policy, should work together in those areas where they agree," he wrote.
"So I hope than in 2008 the Liberal Democrats and the Green party will join us in putting pressure on the government to decentralise power, and that together we can create a new progressive alliance to decentralise British politics."
Mr Cameron, whose olive branch move has echoes of Tony Blair courting Paddy Ashdown's Lib Dems ten years ago, added: "We will never win the fight to make British poverty history as long as we rely on top-down, centralised state mechanisms," he wrote.
"We will only achieve our green objectives - whether improving the quality of life in our neighbourhoods or reducing carbon emissions - by empowering individuals and communities."