Mr Dorrell, who announced that he is joining Mr Clarke's campaign team, said that electing "a non-political politician" and "fully paid-up member of the human race" would transform the Tories' image in the way Tony Blair's decision to drop Labour's commitment to public ownership showed voters the party had changed.
Tory modernisers have long sought to find their "Clause IV" by abandoning a symbolic policy. But in an interview with The Independent, Mr Dorrell argued that the answer was staring the party in the face.
"The election of Ken Clarke in itself would be a Clause IV moment for the Conservative Party," he said. "We have become too self-obsessed. We talk to ourselves. We judge people by our own standards; we don't ask people what the country needs.
"Electing Ken would enable us to break out of this period of self-obsession. What we have not done is engage in politics. We have not remotely been an effective political party during this nightmare."
Mr Dorrell backed Michael Portillo in 2001 before switching to Mr Clarke when he was eliminated. He pressed Mr Clarke to run for the leadership and will advise on policy and raise funds for his campaign.
Despite criticism that Mr Clarke is too old at 65, Mr Dorrell believes he is now "better qualified" to lead the party than when he stood for the post in 1997 and 2001. The main reason is the Iraq war, which Mr Dorrell admits he was wrong to support and Mr Clarke right to oppose.
"We are in serious difficulties when the main opposition party is unable to call the Government to account for a catastrophic series of policy disasters. British politics is in denial about Iraq.
"The purpose was regime change but Tony Blair couldn't say that because it was illegal and it wouldn't have been approved by Parliament.
"It was a misjudgement by me, but more importantly by the Government. Unless the official Opposition is able to say things that are being said in every pub in the land, it compounds the electorate's lack of trust in the political class."
He warned that the Iraq war had made Britain more vulnerable to terrorist attack. "Of course that is true," he said. "Who do they think they are kidding?"
Mr Dorrell believes that Mr Clarke would have the experience and authority to force through policy reforms as Prime Minister in a way that his rivals for the Tory leadership could not.
He said Mr Clarke was a "passionate advocate of change" in his four cabinet posts at the Home Office, Health and Education departments and the Treasury. "He is a pragmatist, not an ideologue. He is interested in results," he said.
Mr Dorrell conceded that Mr Clarke needs to map out a forward-looking policy agenda rather than merely talk about his time as a minister. "It is absolutely true that if you are going to be leader of the party, it is about what is going to happen next, not what happened in the past," he said.
Mr Clarke's prospects could be harmed by a growing revolt by Tory grassroots members against Michael Howard's plan to deprive them of the decisive role in the leadership election and hand the power back to Tory MPs.
Mr Howard may fail to win the required backing of two-thirds of party members' representatives when they vote on the rule change on 27 September. If that happens, the leadership will be decided by party members, who are thought to be less sympathetic to Mr Clarke than Tory MPs.
One survey yesterday found that 44 per cent of Tory constituency chairmen were likely to vote against the rule change, although were evenly split between supporting Mr Clarke and the front-runner, David Davis.
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