John Prescott admitted he "took a gamble" and lost when he relied on Railtrack to restore Britain's railways.
But the Deputy Prime Minister attempted a bullish defence of the Government's handling of Britain's transport system, saying the collapse of Railtrack was the "only difficulty" in the Government's transport strategy.
Passengers' representatives expressed astonishment at the upbeat message. The Rail Passengers Council warned "patience is wearing very thin" and called for urgent action to speed up the process of investment in rail infrastructure.
Former Transport Minister Gavin Strang also entered the row, calling for the rail network to be renationalised.
Mr Prescott told BBC Radio Four's Today programme: "More people travel by train than ever before, millions more journeys, more people travel by bus – that had been declining – a merchant fleet that has been reversed in its decline.
"In all of this evidence, the only difficulty we have got is the railways and Railtrack.
"Where I can say you would have a proper criticism of me is I took a gamble. I put it to my party conference that we would try to make Railtrack work. I put in a new Strategic Rail Authority, I gave powers to the regulator to fine them. But Railtrack was so badly flawed it could not implement on the railways."
The admission that the Government put too much trust in Railtrack will ease pressure on Stephen Byers, the embattled Secretary of State for Transport, who has maintained that his controversial decision to put Railtrack into administration was essential to improve rail services. Mr Prescott, himself a former Transport Secretary, admitted the situation "is not a happy one and I am not happy about it." But he dismissed speculation Mr Byers would lose his job as "press prattle".
He said: "I am not the Prime Minister but I am sure that Stephen is doing the most difficult job you can do and is now facing up to the fact that Railtrack was fatally flawed."
But Mr Strang told BBC Radio: "The correct position now is to take the railways back into public ownership. If the Government owns them then it is able to give it the priority which it justifies."
He added: "If you remember how small the British economy was then and remember the huge programme of public ownership it embarked on what we are talking about in the context of that is not very big at all.
"It is all about priorities. If we attach a very high priority to getting the railways right then I think we take complete control, which I think means the Government takes ownership."
A spokesman for the Rail Passengers Council said: "The key to this is sorting out Railtrack and whatever Railtrack is going to become. We are going to need vast amounts of money coming in if targets for increased capacity are to be met. You don't need extra capacity going to Skegness, you need it coming into London, Edinburgh and Glasgow where it is already very congested."
Mr Prescott spoke after warnings from senior Railtrack executives about the state of the rail network and the emergence of a report by engineers Ove Arup revealing problems on many parts of the network.
But George Muir, director general of the Association of Train Operating Companies, insisted that safety on the railways was improving.
He said: "We have a clear priority on the railway for safety and we are putting in and have been putting in for a year and longer measures to prevent accidents as far as is possible and we will not relax that.
"A sign of that is that the underlying measures of safety have in fact improved in the last year."Reuse content