The Hungarian Prime Minister refused to resign today after the country endured what he described as its longest and darkest night since the fall of communism.

Thousands of nationalist protesters fought riot police and stormed the offices of Hungarian state television last night after a peaceful demonstration against the country's socialist Prime Minister, Ferenc Gyurcsany, ran out of control.

The Hungarian Justice Minister, who oversees the police force, offered to resign after his forces were surprised and overwhelmed. More than 150 people, including 102 police officers, were hurt in five hours of rioting that saw police initially fighting demonstrators with water cannons, tear gas and riot gear before falling back and letting them ransack the TV building.

But Mr Gyurcsany told journalists this morning that he had no intention of standing down, despite the anger generated by a tape recording of Mr Gyurcsany telling his party that he had systematically lied about the state of the Hungarian economy and run a highly duplicitous election campaign.

"I had spent three minutes on Sunday night thinking about whether I should step down or whether I had a reason to step down, and the conclusion I came to is that absolutely not," Mr Gyurcsany told Reuters today.

The recording was played on Hungarian state radio on Sunday. That evening, Mr Gyurcsany acknowledged that it was genuine and posted a transcript of the offending remarks on his personal blog.

"No European country has done something as boneheaded as we have," the transcript, of a closed-door meeting of Socialist Party MPs in May, read. "I almost died when for a year and a half we had to pretend we were governing. Instead, we lied morning, evening and night."

Mr Gyurcsany’s comments were also larded with expletives and called into doubt the abilities of some of Hungary’s most respected economic experts. "We screwed up. Not a little, a lot," he told deputies.

In an attempt to retake control of the situation this morning, Mr Gyurcsany called an emergency meeting of the National Security Cabinet and received a unanimous vote of confidence from his MPs.

Calling last night's violence Hungary's "longest and darkest night" since 1989, he told the state-run news wire MTI: "The street is not a solution, but instead causes conflict and crisis. Our job is to resolve the conflict and prevent a crisis."

He later told Reuters: "The party is 100 per cent behind me, there’s not a single dissenting vote... But I admit, in the past four months, I failed to convey the message about the need for reform."

Mr Gyurcsany, a former communist party official who made a fortune out of privatisation deals in the 1990s, easily won re-election in April after raising government salaries and passing a series of tax cuts.

But since the election, he has introduced a package of swingeing reforms, cutting subsidies and public spending and raising taxes to bring Hungary's economy into line with the rest of the EU and to pave the way for the introduction of the Euro.

Hungary joined the EU in 2004 and currently has the largest budget deficit, at 10.1 per cent of gross domestic product, of any country in the union. Earlier this year, Budapest set the target of reaching a deficit of 3.2 per cent of GDP by 2009.

Sunday's broadcast suggested that Mr Gyurcsany kept secret the current "austerity programme" until his Government was safely re-elected. The lie prompted around 10,000 people, mainly supporters of Hungary's nationalist and anti-communist parties, to protest peacefully on Sunday evening outside Hungary's parliament building.

That number fell to hundreds yesterday afternoon but swelled again last night after Mr Gyurcsany made it clear he did not intend to resign. Then, chanting nationalist slogans and waving the traditional red and white "Arpad stripes" of Hungary's first royal dynasty, the crowd moved towards the state TV building and demanded to air their grievances.

In the ensuing battle with police, several cars were set on fire and protesters also also vandalised a large obelisk commemorating Soviet soldiers killed fighting the Nazis in Hungary during the Second World War.

Today police continued the patrol the streets of central Budapest, where cars were set on fire and the worst fighting took place. One police officer was reported as being in stable condition after suffering serious head injuries and undergoing surgery to remove bone splinters from his skull.

Opposition leaders say Mr Gyurcsany has jeopardised Hungary's faith in democracy and must step down. Tibor Navracsics, the leader of Fidesz, the main opposition party, echoed the comments of the Hungarian President, Laszlo Solyom, who said yesterday that the Prime Minister had plunged the country into a moral crisis.

"There is a moral crisis unfolding and Ferenc Gyurcsany should make it clear that his comments referred to their period in government," he said, responding to Mr Gyurcsany's claim that he was talking about Hungary's political elite in general rather than his own Government.

"The Prime Minister should abandon public life," said Ibolya David, the leader of the smaller opposition party, the Hungarian Democratic Forum. Both parties will be hoping to take advantage of Mr Gyurcsany's unpopularity at the upcoming local elections on October 1.

Foreign investors, many of whom hold Hungarian government bonds and have been watching Mr Gyurcsany's closely to see if he can drive through the necessary economic reforms to reduce Hungary's budget deficit, were uneasy today, wary that the Government could fall and the reform agenda abandoned.

This morning the Hungarian forint fell 1 per cent against the euro, down from a recent high on Monday, and traded at 273.68. The Budapest stock market fell by almost 2 per cent, triggering unease in markets across central Europe.

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