Tony Blair immediately dismissed her intervention while the Conservatives distanced themselves from her comments.
" If they think they are going into the euro I shall keep stirring up sterling and I shall win "
The prime minister said it was time that Britain moved beyond Lady Thatcher's legacy.
Lady Thatcher told BBC News that Britain should always keep the pound.
"If you do not have charge of your own currency, you do not have charge of you own freedom," she said.
"The idea that we should give up our own currency is utterly repugnant and I do not think many people would want to give it up.
"The moment you go to Europe - it's an awful thing, it's a spineless thing."
But Tony Blair dismissed her intervention.
"It is time we moved beyond Thatcherism today," he told Labour's morning news conference.
"That's the problem the Conservatives have.
"They are still stuck in the past trying to get back to where they were with Mrs Thatcher, while the rest of the country wants to move forward."
Shadow chancellor Michael Portillo praised Lady Thatcher but sought to put some distance between her and the current party leadership.
He said: "Lady Thatcher does not express party policy, William Hague expresses party policy."
"We are extremely proud of her record."
But he said it was 10 years since she had been leader and Mr Hague had held that post for the last four years.
Two former Tory ministers have urged the party to switch its focus from Europe.
Europe not priority
Former health secretary Stephen Dorrell said: "All the evidence is that Europe ranks lower in terms of priorities."
And ex-science minister Ian Taylor said it was "folly" to try to turn a general election into a single issue campaign.
Mr Hague dismissed the comments, saying: "Members of my party are absolutely clear that keeping the pound is a major issue."
Lady Thatcher's continued prominence in the election campaign coincided with the launch of a Labour poster in which her hairstyle has been superimposed on Mr Hague's head.
Defending the poster
That was called "trivial" by Lib Dem leader Charles Kennedy - and it drew fire from another former Tory prime minister, John Major.
He said: "It's plain juvenile - it's just banal."
But Tony Blair defended the poster.
"It may be an amusing poster but it has got a serious point to it," he said.
"The serious point is that we should not return this country to the Conservative years."
The Tories hit back with a poster of their own - with what will be seen as a veiled reference to John Prescott's punch in Rhyl.
The poster shows a clenched fist with a knuckle-duster bearing the word "tax" under the slogan: "Labour will hit you hard."