Alan Milburn has said that his new job in the Cabinet means he is in charge of New Labour's re-election efforts - a role previously held by Gordon Brown.
Milburn has been out of the Cabinet for just over a year
The Blairite's new job comes a year after he quit as health secretary to spend more time with his family.
He said Mr Blair had persuaded him back to the frontline ahead of an election predicted for next year.
Mr Milburn dismissed the suggestion Mr Brown had been sidelined from election planning as "complete nonsense".
The two met for the first time since Mr Milburn's return at a Cabinet meeting on Thursday at Number 10.
Mr Blair told gathered ministers that a Conservative reshuffle, which included the frontbench return of ex-minister John Redwood, highlighted the differences between Tories and Labour.
"Their reshuffle shows that the Tories have moved to the right and they now seem determined to return to where they were under William Hague before the last
election," his spokesman quoted him as saying.
Johnson is the first ex-union leader in Cabinet for 40 years
Earlier Mr Milburn tried to play down the issue of Mr Brown's election role.
"When I hear people saying that somebody who is such a towering figure as Gordon, who has played such a big part in this government and its achievements, isn't going to have a key role in this general election campaign,
that is cloud-cuckoo land," he told BBC Radio 4's Today programme.
He added: "This is a team game and we have a team and I want to work with a team that includes all the talent in the cabinet whether that is Gordon or John Prescott or Ian McCartney or David Blunkett or Tessa Jowell or John Reid or Margaret Beckett."
Mr Milburn will be based in the Cabinet Office and also have an office in Number 10.
Downing Street said he would supervise
the work of the No 10 policy directorate and the prime minister's strategy unit, as well as "co-ordinate the development of policy across government".
Mr Milburn made clear on Today that he saw his role as being "in charge of general election planning, the overall strategy and policy presentation and, crucially, the formulation and development of policies that will eventually lead, through the proper process, to a Labour manifesto in the next general election".
BBC political editor Andrew Marr said the differing descriptions of Mr Milburn's brief suggested there were "real tensions and big historical issues here".
Former Labour minister Peter Kilfoyle told BBC Radio 4's World At One many would see the reshuffle as Mr Blair promoting his allies at the expense of the chancellor's supporters.
Darlington MP Mr Milburn will have the official title of Chancellor of the Duchy of Lancaster.
He takes that title from junior minister Douglas Alexander, a close Brown ally who had been playing a key role in election planning.
Mr Milburn made clear he was not committing himself to carry on in government if Labour wins a third term, although he left the door open to such a move.
The shake-up also saw Alan Johnson installed as work and pensions secretary, replacing Andrew Smith.
No 10 says changes among junior ministers will be unveiled on Thursday.
But officials say there will be no more changes at Cabinet rank and they confirmed Labour Chairman Ian McCartney had kept his job.
Political pundits are seeing the reshuffle as a victory for Mr Blair over his chancellor. Mr Johnson is also seen as a Blair ally, being rewarded for his work on getting university top-up fees through.
Mr Johnson is the first former union leader in 40 years to become a Cabinet minister.
He earned the prime minister's respect for the way he steered through Labour's plans for university top-up fees in the face of disquiet on the back benches.
Tory chairman Liam Fox said: "By giving Alan Milburn a non-job, Tony Blair has wimped out of a confrontation with his own chancellor. What a pathetic
and humiliating position for any PM to find himself in."
Downing Street stressed Mr McCartney has Mr Blair's full backing as Labour chairman and Cabinet minister.
There had been newspaper reports that Mr McCartney was to be dropped but it is thought Deputy Prime Minister John Prescott lobbied strongly on his behalf.