The plan to sell a 30% stake in Royal Mail faces strong opposition
Lord Mandelson has accused postal union leaders of using "scare tactics" in the row over government plans to part- privatise Royal Mail.
In an interview with the Observer, the business secretary said union leaders were fighting an "ideological" battle that put pensions and jobs at risk.
He warned Labour that it needed to show it can still pursue bold policies, otherwise it was "inviting defeat".
But the union dismissed his comments as "baffling" and the plan as nonsense.
Mr Mandelson insisted there would be no turning back from the proposed 30% Royal Mail sell-off and said the plans guaranteed a continued "universal, six-day-a-week mail service".
Lord Mandelson accused the Communication Workers Union (CWU) of putting out "propaganda" that risked making it a tug-of-war between the unions and the government.
"I think a lot of the workforce of the Royal Mail won't be thinking of the politics of this, but about their pension and their job security," he said.
"Both are in danger if we do not sort out the finances of the Royal Mail."
Union boss Billy Hayes reacts to Lord Mandelson
But Billy Hayes, general secretary of the CWU, told the BBC he found Mr Mandelson's comments "baffling" and there was no need to take such drastic action.
"It doesn't make sense. It's a bit like what was proposed for Northern Rock.
"The state takes on the problem - even though the government created the problem - and you bring in a private company like TNT to deal with the profits," said Mr Hayes.
He added: "Once you deal with the pension fund, you are giving £300m additional money to the Royal Mail."
The row comes the day after the prime minister defended the government's plan to sell off 30% of Royal Mail, saying it was the only way to safeguard the service.
Lord Mandelson said Labour could still win a fourth term
Critics of the partial sell-off, including more than 130 Labour MPs, fear it will lead to full privatisation and job cuts.
Some of the MPs who have signed the House of Commons motion opposing the sell-off are junior members of the government who by convention normally steer clear of open rebellion.
But Labour's leader in the Commons, Harriet Harman, told the BBC's Andrew Marr it was unlikely they would be disciplined.
She said: "They have concerns, and they're raising those concerns and they need to be reassured.
"As the bill [to part-privatise the Royal Mail] goes through the House of Lords and Commons the prime minister has made it clear that there will be consultations, discussions and debate.
"We will be seeking to bring about that reassurance."