The grandee, one of the architects of New Labour, said people “are not pricing in sufficiently” the possibility of Sir Keir failing to win a majority.
Lord Mandelson’s comments come as his party holds a 20-point poll lead over Rishi Sunak’s Conservatives, with an election expected this autumn.
But the former spin doctor to the party said Labour’s current lead is “artificial”.
And, speaking on his How to Win An Election podcast, Lord Mandelson added: “Believe me, it’s going to contract. And if you consider the swing that is required by Labour to get an overall majority, at the election it is something like 11 or 12, per cent, this is huge.”
He dismissed the likelihood of Labour forming a coalition government with the Liberal Democrats, but said that if voters are “unsure” about Labour the Liberal Democrats would “come into play”.
“What you might find this year is if Labour falls back from its current lead, if Labour fails to maintain its present momentum and political appeal, you may find the Liberal Democrats doing better than expected,” he said.
In that case “the result is somewhat more ambivalent”, he added.
Lord Mandelson was known as the prince of darkness during his time as Labour’s director of communications from 1985 to 1990. He went on to serve as the Labour MP for Hartlepool from 1992 to 2004 and was elevated to the Lords in 2008.
His comments come days after a major poll predicted Labour is on track for a 1997-style general election landslide.
The YouGov survey said the Tories could retain as few as 169 seats, while Labour would sweep into power with 385 – giving Sir Keir Starmer a massive 120-seat majority.
And, in an upset that would be reminiscent of the notorious Portillo moment when then cabinet minister Michael Portillo lost his safe Tory seat, the poll suggested chancellor Jeremy Hunt could lose his seat.
Other ministers under threat include education secretary Gillian Keegan and defence secretary Grant Shapps.
It was one of a series of polls showing the Conservatives facing an election nightmare, with a survey last week showing Labour an incredible 34 points ahead of Rishi Sunak’s party in 150 key marginal seats it needs to win.