One cabinet minister said Mr Mandelson's career was "finished" and added: "He should go into business."
Suggestions from friends of Mr Mandelson that the former secretary of state for trade and industry could stand for Mayor of London were being dismissed. "He couldn't beat [Ken] Livingstone for a seat on the NEC [National Executive Committee]. He wouldn't get the nomination of the party in London. Mandelson is not coming back - not in this century and not in the next," said the minister.
Cabinet colleagues are ready to resist any attempt by Tony Blair to bring Mr Mandelson back as a high-profile campaigner next year for the European elections. The Prime Minister, who leaves for his new year holiday in the Seychelles tomorrow, will be left in no doubt that Mr Mandelson is brought back in any senior capacity, moves will be made to discredit him further.
"This is about the holy trinity - Blair, Mandelson and Brown," said one of Mr Mandelson's former colleagues. "There will have to be a reassessment of the whole New Labour project now that he has gone."
After Mr Mandelson's resignation, the focus of the affair switched to his application form for a pounds 150,000 mortgage from the Britannia Building Society, which was seen as the real cause behind his decision to quit.
John Prescott, the Deputy Prime Minister, who was given the task of steadying the Government, made it clear in pre-Christmas interviews that he expects Mr Mandelson to clear up the question of the building society loan within two days, to prevent further embarrassment.
It is thought Mr Mandelson did not make clear that he had another loan when he applied for the mortgage for his pounds 475,000 house in Notting Hill, west London. He said at the time that he was financing it with a family legacy, but the loan from Mr Robinson - who resigned as paymaster-general on Wednesday - meant he was borrowing more than 10 times his MP's salary of pounds 43,000.
According to building society sources, making a false declarations on an application form may leave a borrower open to charges of fraud.
Mr Mandelson's spokesman said "he believes it [the form] may not reflect the final financing arrangements on the property as these were undecided at the time of the application of the mortgage".
Any contradictions over Mr Mandelson's application form, which he insisted two days ago had been completed "correctly and appropriately", could prove more damaging. The Tories are determined to exploit the loan application to further embarrass the Government. Michael Howard, shadow Foreign Secretary, said: "We clearly need to know the position relating to the mortgage application. Mr Mandelson was clearly being disingenuous when he said he hadn't had time to check. One telephone call to the Britannia Building Society would have provided the answer."
Cabinet ministers intend to use the resignation of Mr Mandelson, architect of New Labour, to halt a possible coalition with the Liberal Democrats, and to clip the wings of Gordon Brown's spin doctor, Charlie Whelan. Alastair Campbell, the Prime Minister's press secretary, denied saying he wanted Mr Whelan moved, but ministers believe a halt will be called to the internal warfare.
Despite a glowing tribute by Mr Blair in his reply to Mr Mandelson's resignation letter, the former minister's critics are determined to slam the door on his front-line political career. He has made several enemies around the cabinet table, including Robin Cook, the Foreign Secretary, whose job was under threat from Mr Mandelson.
The resignation is seen by ministers as a catalyst to rid the Blair government of its over-dependency on spin doctoring, and refocus the Cabinet on the delivery of better public services. It gives key players in the Cabinet the chance to regain some control from the Blair inner circle, attacked by the Tories as "Tony's cronies".
Mr Blair signalled that he wanted the modernisation drive to continue by appointing Stephen Byers as Trade and Industry Secretary and Alan Milburn as Chief Secretary to the Treasury. Geoff Hoon was appointed Paymaster- General to replace Mr Robinson and John Denham becomes the new Health minister.Reuse content