Lord Mandelson has blasted Labour for failing to have a strategy to decentralise power from London to northern England.
The former business secretary accused his party of having "language, not policies" on the issue and described the lack of an alternative to Chancellor George Osborne's "Northern Powerhouse" a "huge political mistake".
Peter Mandelson told the BBC's Sunday Politics North West programme, "We were not radical enough in what we were proposing to decentralise and to devolve away from London and to the regions."
Lord Mandelson said of Osborne, "He got an idea, whatever his motive was, and he is running with it and we let him do so and that was a huge political mistake.
Lord Mandelson said Ed Miliband has "way exceeded my expectations" and hailed the Labour leader's election campaign.
The former strategy chief and cabinet minister - who last month declined to positively endorse the party leader - said Miliband had confounded his critics and found the national "Zeitgeist".
"I started feeling at the end of last week that something had shifted," Mandelson told Channel 4 News.
"That the plates had moved and Labour has captured a Zeitgeist in this campaign and the most striking feature of it is what's happened to the two leaders.
"Miliband has moved forwards. He gained credibility. He's exceeded most people's expectations. I suppose in a sense mine as well. David Cameron on the other hand has moved backwards."
Asked in March whether the party would do better under another leader, the peer had stopped well short of an enthusiastic endorsement of Miliband.
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Commenting on a spat between musician James Blunt and shadow culture minister Chris Bryant, the former Labour cabinet minister Lord Mandelson warned against attempts to "divide up society".
He told BBC2's Newsnight that he was unaware of what Mr Bryant and Blunt had said but added:
I think glibness, I think ideologically-based rhetoric, I think trying to divide up society between the haves and have nots and mobilise the middle ground against the rich is as unacceptable as we have from elsewhere in the political spectrum trying to mobilise the middle ground against what they call welfare scroungers but are actually poor people who have little and want more. I don't like that polarisation, that political polarisation, partly because it doesn't lead to very good policy, it doesn't help you get elected, and thirdly it doesn't have much chance of creating the sort of consensual politics you need in a country like Britain to create the sort of society we want to see.
Lord Mandelson has called on the Conservatives to stop grandstanding for the Ukip vote by demanding a referendum on Britain's membership of the European Union.
The former European Commissioner and Labour Cabinet minister said the EU needed reform but talk of leaving only created uncertainty for investors and would threaten British jobs.
The Labour peer, who was speaking as the European Union (Referendum) Bill reached its second reading in the House of Lords, said he believed it was possible to win the argument for Britain to remain part of the EU if it was put to a public vote.
He said: "We need to concentrate on using all of our influence and energy in building up Britain's influence in Europe, not driving Britain out of Europe.
"This Bill is not about changing or improving the EU, it is indeed stage one in raising impossible demands on the European Union in order to create the pretext for leaving it."
"My message to the Government is stop grandstanding to the Ukip gathering. If you are really serious about European reform, you have to go out and work for it and join with others in achieving it," he added.
Lord Mandelson has claimed that Ed Miliband risks accusations of taking the Labour party backwards with his pledge to freeze energy bills.
As a result of the speech, I believe that perceptions of Labour policy are in danger of being taken backwards.
At the business department I tried to move on from the conventional choice in industrial policy between state control and laissez-faire.
The industrial activism I developed showed that intervention in the economy – government doing some of the pump priming of important markets, sectors and technologies – was a sensible approach.
The former EU trade commissioner Peter Mandelson has accused eurosceptic politicians of "operating a sort of Sopranos-style protection racket inside the Conservative party".
He told BBC1's Andrew Marr Show:
The UK isolation party and their fellow travellers in the Conservative party are ... operating a sort of Sopranos-style protection racket inside the Conservative party. They are saying ... 'give us what we're demanding or we're going to burn your home down'. In my view the Prime Minister has got to say 'enough is enough'.
David Cameron must “turn down the heat” on Europe or risk losing allies in his attempt to reshape Britain’s relationship with Brussels, former European Commissioner Lord Mandelson has told The Times (£).
The former Labour Cabinet minister said Britain’s natural allies in Europe were losing patience with the Government’s “foot-stomping strategy” of threatening vetos if Mr Cameron does not get his way.