Are you sick of Labour yet?

For a firebrand, Tariq Ali is surprisingly mild. With his unkempt hairdo and up-to-the-minute training shoes, he retains, at 55, some of the dash of his revolutionary youth. But he doesn’t shout, he doesn’t bang tables.

No, his most offensive behaviour consists of snatching a large handful of crisps without asking – and that was probably down to nerves, because it occurred just five minutes before the first preview of his new play at Tricycle Theatre in Kilburn, north-west London.

It’s with his writing, not in person, that Ali gets up people’s noses these days. And he’s about to do that a lot.

Not just with Ugly Rumours, the satire he has co-written about the New Labour Government, which promises to “pull down the pants of power”. But also with a novel, The Book of Saladin, published next month by Verso, that’s practically guaranteed to upset at least one religious community.

The play, named after Tony Blair’s old student band, provides a riotous send-up of the current administration. “Like millions of others,” says Ali, the Sixties student leader considered so radical that his application to join the Labour Party in 1981 was turned down, “I was delighted when the Tories were defeated [in the general election]. I shared the Portillo moment. But this government has not broken with Thatcherism at all. These people believe in nothing but power,” he adds, in a voice just a little too languid to convey the anger he declares.

Disillusioned, Ali picked up the phone in February to ask his old friend and fellow playwright Howard Brenton, “Are you sick of them yet?” He was. Brenton, a Labour Party member, says, “The party today is like the town in Invasion of the Body Snatchers. Vegetable-brained aliens have taken it over.”

So they got to work, writing in the grim industrial block in Kentish Town, north London, where Ali produces controversial television programmes. (In recent months, his productions have included Big Women, Fay Weldon’s drama about a feminist publishing house and an abrasive reassessment of Mother Teresa by the journalist Christopher Hitchens.) Ugly Rumours was initially offered as a concept to the National Theatre’s artistic director, Trevor Nunn. But Nunn turned it down.

Much the same happened when Ali, who once reviewed plays for Michael Heseltine’s Town magazine, and Brenton, co-writer with David Hare of the award-winning Pravda, approached director Jude Kelly at the West Yorkshire Playhouse.

It seems fair to ask: would these ground-breaking institutions have turned down a similar project after a year and a half of Conservative government? Maybe, maybe not. But either way, it’s easy to see why friends of the current Government might deem the project risky. Its account of the power struggle between the Prime Minister and the Chancellor of the Exchequer is acutely funny. It renders several important figures preposterous – perhaps none more than the Prime Minister, Tony-Boy, who goes down on his knees before a media baron to explain the euro in two minutes.

Some gags are better than others. One person spotted in the audience at the first preview was Lord Irvine’s wife, who won’t exactly have split her sides at the sight of the Lord Chancellor wearing high heels. Other jokes are wittier: a mess in the Chancellor of the Exchequer’s bedroom can’t be tidied up because it’s “awaiting a review”.

But patchiness is inevitable because the script is constantly updated – already Ali and Brenton have added references to General Pinochet and former Welsh Secretary Ron Davies. There are also surreal elements. The vacuous Tony-Boy is stalked by a cobwebbed Margaret Thatcher, risen from his basement with a hand-held “head and heart extractor” that pumps “even the tiniest bit of socialism out of the body”.

Tickled? Ali and Brenton were. While writing, they disturbed neighbours with their own laughter. “Comic writing is best with two authors,” explains Brenton. “You have to speak the gags aloud to see if your partner’s eyes go dead.”

They first worked together in 1989, on a play about Salman Rushdie’s Satanic Verses. “After the fatwa, people were running around scared of saying anything,” says Ali. “So we put Ayatollah Khomenei on stage.” New to play-writing at the time, he was advised to work with a collaborator. He chose Brenton. “I’d loved Pravda,” he explains, “and The Romans in Britain, which created a tremendous scandal.” Their joint effort did the same. “Arthur Miller came and said this is what theatre should be about,” says Ali, delighted. Rushdie was less chuffed, however, because a running joke suggested his novel was unreadable.

The burning of Rushdie’s book in Bradford by offended Muslims also inspired Ali, a lifelong atheist despite growing up in Muslim Pakistan, to write novels. “I wanted to show these kids how their own culture has suffered over the years with the burning of books.” Another source of inspiration came during the Gulf War: “I heard someone on the TV saying the Arabs were people without political culture. That annoyed me a great deal.”

These novels, about the conflict between Christendom and the Muslim world, are astonishingly unlike Ali’s other work. The first, Shadows of the Pomegranate Tree, was set in Spain. Its account of one highly civilised Muslim family’s fate at the hands of the reconquering Christians is moving, personal and sensuous – not the least bit strident, and not mocking, like his plays.

It’s been well received across Europe, and recently became a bestseller in Bosnia. “The imam at the Sarajevo mosque advised every Bosnian to read it, because it described their recent experience. My translator told him it was by a well-known atheist, but he said that didn’t matter.”

The new book weaves together political intrigue, love stories and “the mother of all battles” (Saladin’s campaign to take Jerusalem from the Crusaders). “I have tried to get into the mind of this guy, who rose from nothing to become the greatest leader of the Arab world.”

The next book will be on the Ottoman Empire. If there’s a fourth, perhaps Ali could set it in Pakistan, which he left in 1963 for Oxford. The country is “disintegrating” into cynicism, he says. “People [there] say to me, ‘Have you heard that Nigeria has beaten us in the corruption tables? We are very upset!’ You have to laugh because otherwise you’d cry.”

Since the fatwa against Rushdie, publishers have been cautious about references to Islam. Ali does occasionally refer – if only obliquely – to Mohammed in The Book of Saladin, “which some people might not like”, but there’s something else more likely to offend. Half-way through the book, the great Jewish scholar Maimonides – Saladin’s physician – is depicted engaging in adultery with the narrator’s wife. Ali insists that this story line developed organically, and wasn’t calculated trouble-making. But “it would be fun if people got worked up about it,” he says, with a mischievous grin.

As I said, Tariq Ali is about to get up people’s noses.