Lord Prescott warned the Labour Party was almost bankrupt and must get a grip of its finances.
The former deputy prime minister, who wants to be treasurer, said the party had forgotten how to organise and called for limits on party political spending.
Membership had also fallen dramatically and the party was about £20 million in debt, he added.
"The treasurer has got to say to the central body, in this case Number 10, you cannot keep on spending, we damn well haven't got it.
"We want a strong treasurer who's involved in the membership drive, putting a proper financial account into the party, and is an active political person in making that accountable to the constituencies.
"You can go on if you like and just have somebody doing what's always been the way. Well, we cannot continue to finance a political party in that way.
"We have to do what I said when I was elected as deputy leader. The politics of organisation are equally as important as the politics of ideas. We forgot about the organisation bit."
Lord Prescott spoke out yesterday in a public appearance at the Scottish Parliament's annual Festival of Politics.
The appearance, with Holyrood's Presiding Officer, Alex Fergusson, focused on his career and took in questions from the public in the main chamber.
The former Hull East MP discussed his role on climate change in the Council of Europe and ruled out taking his experience to the Tory-Liberal Democrat UK Government.
In a swipe at "collaborators" from Labour joining the coalition administration, he said: "I'm a politician and I have a parliamentary framework by which I can tell the Government what they should or they shouldn't do. They can take notice or not, and I can hold them to account.
"You don't have to join a commission to tell them what to do. We're politicians - tell them in the arena, that's what I do."
He defended his move to the House of Lords, saying this gave him the opportunity to continue political campaigning.
And he predicted tensions from the public spending cuts will drive forward debate on handing devolution to regions of England, particularly the north.
He praised the Scottish and Welsh models, which he said should be strengthened.
The peer added: "When you start cutting back like this, the whole business of regional politics, which you have shown in Scotland, you can exercise power in the centre by a Scottish Parliament.
"The English regions with equally the same size of population should begin to use the same muscle."