The government has been defeated in a vote on its plans to expand the use of private firms in the NHS.
The health secretary says competition has cut waiting times
David Prentis, leader of the biggest public sector union, Unison, accused ministers of "not learning from flawed Tory policies of the past".
But Health Secretary Patricia Hewitt told the Labour Party conference that profit was not a "dirty word" and private firms could help efficiency.
The call for no more private sector care in the NHS won 71% of the vote.
The constituency Labour party delegates voted against the motion by 57% to 43%, but it was carried after 99.9% of unions voted for it.
Mr Prentis said the NHS should not be run on a "fragmented basis", with different parts "competing for patients".
He added: "This is simply not acceptable from our Labour government."
But Ms Hewitt insisted government plans, under which the private sector could carry out 15% of NHS operations by 2008, would increase capacity, bring down waiting times, and lead to more innovation.
The NHS had used private providers for "many, many years" but in the "most inefficient and desperately expensive way".
Ms Hewitt called it "unacceptable that people in pain and desperate anxiety are still being told by our NHS that they have to wait months, sometimes more than a year" for operations.
Those who could afford private care often got treatment within days, she said.
She added: "This isn't privatisation...We are not selling off NHS hospitals."
In his speech on Tuesday, Tony Blair said he regretted his reforms over the last eight years had not gone further.
He admitted efforts to improve choice in public services, sometimes involving the private sector, had proved controversial with some Labour members and trade unionists.
But he warned: "For Labour, choice should be too important to be the monopoly of the wealthy."