Lord Mandelson warned Ed Miliband on Sunday that he faced a series of challenges, including curbing union influence on Labour and spelling out a clear economic message, if the party is to win the next general election.
The former Business Secretary also delivered an icy put-down of the performance of Ed Balls as Shadow Chancellor.
In an unwelcome intervention for the party’s leadership, Lord Mandelson said the next election was “for Labour to lose” but that the party needed to overcome several problems to win over wavering voters.
Lord Mandelson, an architect of New Labour, said: “Ed Miliband faces a big test of his leadership in relation to the trade unions. He has effectively got to win the fight that he started quite radically to reform the relationship between the trade unions and Labour.”
Three months ago Mr Miliband announced plans to scrap the automatic affiliation of union members to Labour in favour of a system under which trade unionists are asked individually to sign up.
The moves, which followed allegations of ballot-rigging by union activists in the selection of a Labour candidate in Falkirk, have been strongly opposed by some union leaders.
But Lord Mandelson dismissed suggestions that Mr Miliband could water down his proposals and said he should go further by “lifting the trade union grip” over Labour party conference votes and electing the party’s leader.
Labour’s union links were a “source of great interest and anxiety” for voters, he added.
Lord Mandelson, who has raised doubts over the Labour leader’s promise to freeze energy prices for 20 months if he wins the election, said the Labour leadership had to “paint in” the economic picture.
“They have got to convert their very effective skilful tactics on cost of living into a strategy which is rooted in policies for economic growth and rising prosperity for the country as a whole,” he told BBC1’s Andrew Marr Show.
Asked how he thought Mr Balls was performing, he replied: “I think Ed Balls has a wealth of knowledge and experience of economics, of international finance of markets.
“I think he has huge expertise which the country will benefit from. I sometimes think though that he is perhaps better in government than he is in opposition but that’s not a bad thing. I’d rather have a Chancellor of the Exchequer who is good in government than a shadow chancellor who is simply good at being an opposition spokesman.”
Lord Mandelson also warned Mr Miliband that he “has to navigate his way through what could be a very difficult minefield” when the Chilcot inquiry into the Iraq war is published next year. His comments suggest senior Labour figures are expecting the long-delayed report to make uncomfortable reading for Tony Blair and other former ministers.