Iran's presidential election campaign moved towards a gripping climax last night, ahead of a poll that has turned into a referendum on Mahmoud Ahmadi-Nejad's performance.

Thousands of demonstrators camped around the state broadcaster to protest against a final television address allocated to the controversial incumbent, while hundreds of thousands joined carnival-like parades through the country.

The most hotly contested election in Iran's post-revolutionary history could have a significant impact on the evolution of domestic and foreign policy.

Mir-Hossein Moussavi, a reformist who poses a serious challenge to the fundamentalist president, has pledged to loosen social restrictions and to pursue detente with the west, while Mr Ahmadi-Nejad has vowed to continue his controversial economic and nuclear policies.

The incumbent has come under heavy fire during the campaign, which he last night suggested was because he had performed so well as president.

"The performance of this government was shining compared to the previous governments. [My critics] started this propaganda against me because of all my achievements . . ." he said in a 20-minute speech on television. Mr Ahmadi-Nejad had earlier warned that those who have "insulted" him in recent days could face imprisonment.

Separately, authorities vowed to crack down if it appeared that a "velvet revolution" was taking place. Many have likened the crowds of the past week - driven by Mr Moussavi's supporters, who have adopted the colour green to identify them with his campaign - to those that supported the overthrow of the Shah in 1979.

"The use of a special colour for the first time in the election . . . is evaluated by some . . . as a sign of a velvet revolution plot," Yadollah Abbasi, head of the political department of the elite Revolutionary Guards, told the force's publication.

A few analysts are predicting a victory for Mr Moussavi tomorrow, although most say the race between him and Mr Ahmadi-Nejad is too close to call. If one candidate wins more than 50 per cent of the vote tomorrow, he will automatically become president. Otherwise, the top two will go forward to a second round next Friday.