Universities should not rely on the qualifications when making course offers, but look at prospective students' backgrounds, as well as their aptitude and abilities, Lord Mandelson said.
The move comes following concerns that students from poorer backgrounds are missing out on places at prestigious institutions.
The proposals form part of a new blueprint for the future of the UK's universities, which will change the face of the sector.
The new framework for higher education sets out priorities for the sector and comes before a review of the student funding system is due to begin.
It says that while many universities have made progress in recruiting students from poorer backgrounds, others, particularly the more selective, leading universities, are still behind.
"Fairer access for educationally disadvantaged but able UK pupils has to remain a key part of how our world class universities see their missions," the framework says.
Publishing the report today, Lord Mandelson announced that Sir Martin Harris, Director of Fair Access, is to consult with vice-chancellors and report back to Government in four months on the action that could be taken to widen access to universities.
He said: "What we are saying is that nobody should be disadvantaged or penalised on the basis of the families they come from, of school they attended and the way in which simple assessment based on A-level results might exclude them.
"That applies to middle-class children as well who don't perform well but have strong aptitude and strong potential.
"I want universities to take that into account, it is just how you arrive at the assessment of merit."
Some universities are already using "contextual" information, such as details about an applicant's background and schooling.
Sir Martin's review will look at how each university can set and achieve targets on this issue for themselves.
He will be expected to offer advice on how universities and schools can work together to identify and mentor talented youngsters, and look at whether the money used by universities to widen access, which is mainly spent on bursaries, can be targeted in different ways to make it more effective.
Sir Martin has been asked to concentrate on talking to vice-chancellors at selective universities, Lord Mandelson said.
These universities have "made a great effort and they've made progress," but in some subjects there are fewer applicants from state schools or "people from poorer and less privileged backgrounds," he said.
The role of schools also needs to be looked at as well as universities for "a change in priorities if we are going to achieve more," Lord Mandelson added.
Today's framework will radically alter the sector, turning students into "consumers" who are choosier about courses and institutions.
It says that students must be given more information about courses, including information on contact hours as well as drop-out rates and future earnings.
And ministers also suggested that the make-up of students is likely to change, with less expansion of 18-year-old school leavers going straight to university, and more mature and part time students.
Universities minister David Lammy said the higher education system needs to change to meet the needs of mature students "particularly against a changing demographic where there will be less teenagers and it is critical to re-skill and up-skill the existing work force."
The framework also says that universities will play a major role in helping the country's economic recovery in the future.
It calls for funding for university research to be targeted on science based subjects, and says universities should compete for funding.
And the framework warns that in the current economic climate maintaining the current level of public funding for universities is likely to be "extremely difficult" and that institutions should look for other sources of funding.
Lord Mandelson said the tuition fees review will be launched shortly, but refused to give more details. It will not report back until after the next general election.
Sir Martin said: "I am encouraged by the importance that the new framework continues to place on wider and fairer access to higher education.
"Far from downgrading its efforts in this area, the Government is instead stepping up the momentum to reinvigorate social mobility in this country. I am pleased it has maintained its resolve in such a difficult fiscal environment.
"As the framework rightly argues, the question of access to higher education is one of both social justice and economic success - in other words, it is in all our interests to make sure that those with the talent and motivation to benefit from going to university are able to do so.
"Ensuring that appropriately qualified children from under privileged backgrounds have the opportunity to access highly selective institutions is an important part of the fair access agenda."
Wes Streeting, president of the National Union of Students (NUS), said: "We really welcome the fact that the use of contextual data is something that features prominently in the framework today.
"We know that A-level results and prior attainment are not necessarily a fair reflection of an applicant's potential.
"There are a variety of factors, parental factors, upbringing, schooling, which can all hold back someone's achievement."
Mr Streeting said there is emerging evidence that students who don't perform well at A-level due to contextual factors go on to outperform their better-qualified colleagues at university.
Professor Les Ebdon, chair of university think tank million+ said: "The emphasis on employability, part-time and mature students, new routes to access university and the importance of applied research are all welcome and central to ensuring that universities are fit to serve the needs of students and employers in both the private and not-for-profit sectors in the 21st century."
Professor Paul Wellings, chair of the 1994 Group and Vice-Chancellor of the Lancaster University said: "We look forward to contributing to Sir Martin Harris' review on 'further action that could be taken to widen access to highly selective universities for those from under privileged backgrounds'.
"It is crucial that all students with the ability to go to university are able to access the top universities. 1994 Group universities are working closely with schools to encourage prospective students from all backgrounds to apply to leading universities.
"Our universities are investing over £45m this year in student support and outreach activity and offer a range of scholarships and bursaries that continue to grow annually."
Dr Wendy Piatt, director general of the Russell Group of leading universities, said: "Social mobility and widening access remain a major concern for Russell Group universities.
"Last year (2007/08) Russell Group universities spent £45m of income from student fees on outreach and bursaries to help students from less advantaged backgrounds access their institutions.
"However academic achievement continues to be the key factor in determining whether a student will go on to university. This is why our universities are working hard to help raise attainment and aspirations, with staff and students devoting an increasing amount of their time to working closely with local schools and colleges, arranging summer schools, and providing access courses."
Sally Hunt, general secretary of the University and College Union (UCU), said: "UCU firmly believes that we need to look at a whole range of information when considering students for university. University staff want to teach the brightest and best students, whatever their background and recognise the need to look beyond grades or how well someone has been prepared for an interview.
"Frustratingly, a lot of the damage has been done before students reach university and we welcome plans for a more joined-up approach in today's document. We strongly believe in the power of education to change lives and welcome Lord Mandelson's focus, once again, on education as a driver for social mobility.
"Students from the poorer backgrounds do often need more support in terms of mentoring as well as financial support and it is absolutely vital that students are not priced out of university by any new measures from this framework review or the forthcoming fees review."
TUC general secretary Brendan Barber said: "Today's report comes as more people than ever want to achieve higher level skills. Harnessing this record level of ambition is crucial to the UK's long-term economic prospects.
"But barriers to higher education continue to hold back young people from low-income groups and working people wishing to achieve higher level skills.
"We welcome the focus on widening access to higher education by making it more accessible to workers, people in further education and apprentices."
Professor Steve Smith, president of vice-chancellors' group Universities UK, said: "These proposals recognise the vital role that universities will play in the future success of the UK, both in economic and social terms.
"Figures published today by Universities UK show that universities now generate £59 billion for the UK economy, £15 billion more than in 2004. Universities are already working closely with businesses and we agree that increasing this fruitful interaction will be critical to our national future success.
"We also agree that increasing the range of routes into higher education and the diversity of modes of learning, including for part-time and mature students, is essential to maximise the contribution that universities make."
He added: "We share the Government's commitment to ensure that anyone with the ability to benefit has the opportunity to access higher education.
"Not only is this an issue of social justice, but also vital if we as a sector are to be able to continue to compete globally.
"Given the composition of the labour force and the demographics, universities recognise the importance of expanding adult provision, particularly in terms of up-skilling and re-skilling those already in the workforce. To support this, universities offer a wide range of learning models.
"However, the key to widening participation in higher education, for those who apply directly from school and college, lies in raising awareness earlier on in the education process and in increasing attainment levels in schools and this is why universities have developed extensive partnerships with schools and colleges."
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