The former Labour leader said Mr Corbyn took his MPs into the election with a "strategy for defeat" and said the result had "brought shame" on the party.
He attacked the "takeover of the Labour Party by the far-left," which he claimed turned it into a "glorified protest movement, with cult trimmings, utterly incapable of being a credible government".
He warned Labour is "marooned on fantasy island" in the left of politics and said he doubts any prospective leader can “take it to the mainland”.
Mr Blair, whose old safe Labour seat of Sedgefield fell to the Tories in the election, said the performance by Labour at such a crucial time in British politics was "unforgivable".
He warned of "15 years more of Tory government" if Labour could not transform itself into a "serious, progressive" alternative to the Conservatives, if not, he said the party was "finished".
Mr Blair said the party was punished for changing from a leave stance following the Brexit referendum but claimed the defeat was the result of a "Corbyn problem and secondarily a Brexit problem".
He urged the party to learn from the election and warned against a “whitewash” of the devastating defeat.
He said Mr Corbyn's planned “process of reflection” before standing down as leader will cause “irreparable damage” if it buries the reasons for the party’s worst result since 1935.
Mr Blair, who is the only Labour leader to have won a general election in the last 45 years, criticised the “sectarian ultra-left politics” that have taken over the party, blamed Mr Corbyn for driving away traditional supporters.
He added: “Labour needs not just a different driver, but a different bus.”
Mr Blair told the audience in central London that the result “marks a moment in history” and was “no ordinary defeat for Labour” as the party undergoes a battle to replace Mr Corbyn and diagnose the causes of the disaster.
“The choice for Labour is to renew itself as the serious, progressive, non-Conservative competitor for power in British politics, or retreat from such an ambition, in which case over time it will be replaced,” he is expected to add.
“So, at one level, sure let’s have a period of ‘reflection’, but any attempt to whitewash this defeat, pretend it is something other than it is, or the consequence of something other than the obvious, will cause irreparable damage to our relationship with the electorate.”
A report by Mr Blair's foundation based on polling and focus group research identifies five pillars of “northern discomfort” including Brexit that Labour suffered in the election, which saw dozens of seats in its heartlands, including Mr Blair’s former Sedgefield seat, snatched by the Tories.
It concedes that Mr Corbyn did not “cause Labour’s crisis” which has “been brewing for some years” but criticises his neutral Brexit stance, perceived associations with extremism and allegations of a lack of patriotism for creating a “lethal mix”.
To eject Prime Minister Boris Johnson from Downing Street, the report says, Mr Corbyn was tasked with reversing Labour’s decline in the Midlands and the north of England.
“Instead, his leadership and his political strategy achieved precisely the opposite. They drove even more traditional Labour supporters away from the party,” the report by the Tony Blair Institute for Global Change states.
Mr Corbyn has sought to defend his manifesto, which included the renationalisation of key utilities as being “extremely popular”, and blame Brexit for having dominated the debate.
But the report for Mr Blair’s organisation says the EU was not the “main explanation” and instead criticises the current leader “and the politics he represents”.
Only 24% of voters polled in the report believed Mr Corbyn is patriotic, with focus group participants criticising his perceived associations with the IRA and terror groups.
The fatal London Bridge terror attack during the campaign had “real cut-through”, the report says, with perceptions being that Mr Corbyn’s stance was weak.
His policies were individually popular, polling suggested, but voters felt they lacked credibility when taken together, with 22% thinking the ideas were both good in principle and that Labour could be trusted to spend the money wisely.
A Labour source defended Mr Corbyn and blamed Mr Blair for having overseen the start of Labour’s decline.
“In 2017 we saw the biggest swing to Labour since 1945 and more people voted for Labour under Jeremy, both in this election and in 2017, than Ed Miliband in 2015, Gordon Brown in 2010 or Tony Blair in 2005,” the source said.
“As with Scotland, the decline in Labour support in the North discussed in this report started under Tony Blair. While the party undergoes a period of reflection, perhaps Tony Blair should reflect on his own role.”