Lord Mandelson enraged unions and Labour MPs last night by accusing wildcat strikers of "protectionism" and claiming they could turn the recession into a full-blown depression.
The Business Secretary inflamed the dispute over foreign workers by suggesting that protesters could go and work elsewhere in Europe if they were unhappy.
As the mediator Acas was called in to try to prevent more unofficial strikes planned for tomorrow, the peer issued a statement that failed to damp down growing industrial unrest.
His support for free movement of workers in the European Union was also at odds with Gordon Brown's 2007 promise to safeguard "British jobs for British workers", a phrase which has been turned against the Prime Minister by protesters.
In a statement issued from the world economic forum in Davos, Lord Mandelson said: "I understand people's concerns about jobs and it is important to make sure that both domestic UK law and European rules are being applied properly and fairly. But it would be a huge mistake to retreat from a policy where, within the rules, UK companies can operate in Europe and European companies can operate here. Protectionism would be a sure-fire way of turning recession into depression."
Lord Mandelson was backed up by Caroline Flint, the Europe minister, who told The Independent on Sunday: "As the Prime Minister has said, we understand people's concerns and insecurities particularly at this time. The Government is doing everything possible to keep people in work and to provide support to those looking for jobs. It is important to remember that open European labour markets also allow British firms and workers to take advantage of contracts and opportunities elsewhere in the EU."
Union leaders and Labour MPs denied the protests were about protectionism. GMB general-secretary Paul Kenny said the statement showed ministers were still unaware of the "unequal treatment" faced by workers in the jobs market.
He said: "Mandelson needs to get his head out of the stars and come back down to earth. We now have a situation where the legislative framework in Britain works against our workers. The Government promised to sort this out five years ago... but they have not sorted it out."
Mr Kenny added: "Mr Mandelson has come back from Europe and he thinks everything is fine. He needs to get his feet on the ground."
The Labour MP for Cleethorpes, Shona McIsaac, said the decision to hire foreign workers was like a "red rag to a bull" to local unemployed people.
A spokesman for the Prime Minister said the contracts were awarded some time ago, when there was a shortage of labour in the construction sector.