THE Yes in London's referendum for an elected mayor handed Tony Blair a political dilemma yesterday as Labour's most popular candidate urged the Prime Minister to give party members a free vote, writes Benedict Brogan.

Ken Livingstone, the left-wing MP whose turbulent leadership of the Greater London Council prompted Margaret Thatcher to abolish it in 1986, is seen as an unacceptable choice by the Labour leadership.

At a Westminster news conference Mr Livingstone urged the Government to release the ''energy'' that had characterised Londoners' famous wartime spirit and give people real choice in how the capital should be run.

He also put himself on an immediate collision course with Mr Blair by saying big companies based in London ''making profits almost beyond the imagination'' should pay more tax towards tackling the city's problems.

Opinion polls put Mr Livingstone ahead of the field for the election which will elect a mayor for London as early as next year. The job, leading a city of 10 million people, will be second in political power only to the Prime Minister.

However there are suspicions of a ''Stop Ken'' campaign in the Labour leadership.

Asked what he would do if the party's ruling National Executive Committee, of which he is a member, blocked his candidature, Mr Livingstone said: ''I'm staying in the Labour Party. I am here for the duration until I die. The only way I'm not going to be in the Labour Party is if they drag me out of it. Too many good socialists have been kicked out of the party. I'm not going to go voluntarily.''

Mr Livingstone called on Mr Blair to let party members decide for themselves who the candidate will be. But the Premier is said to be casting around for an acceptable alternative and for the moment support is shifting towards London Transport Minister and former actress Glenda Jackson.