Peter Mandelson would have kept his job if he had found the documents that proved he did nothing wrong in the cash for passports row, Downing Street has said.

Responding to the news that the former Northern Ireland secretary had failed to overturn the findings of an inquiry into his involvement in the Hinduja affair, Number 10 said Mandelson had been forced to quit as a result of a "muddle".

"We have always said that the reason why Peter Mandelson left government was because of the muddle that arose as a result of the general handling of this issue when it became an issue of political controversy, rather than the substance of the charges, which have again been shown to be totally baseless," said the official spokesman.

"It is a pity that the documents now available were not available at the time either of Peter Mandelson's resignation or at the time of the original Hammond inquiry, since they make it clear beyond any doubt that Peter Mandelson acted entirely properly, and that the issue was handled in a proper way by ministers and officials.

"Had the documents been available at the time, the picture of events would have been far clearer and less open to misinterpretation, the sequence of events including the resignation may well have been different."

Downing Street also came close to offering an apology, saying that "those who doubted the words of Peter Mandelson were wrong to do so".

Number 10 gave a strong signal that Blair now considers the matter closed. "We all know that we are where we are. Equally it's time to move on. There's no point getting into any blame game," said the spokesman.

However, the fresh report by Sir Anthony Hammond concluded that the new evidence supplied by the former Northern Ireland minister does not change his original conclusions.

No change

Whilst it says Mandelson did nothing wrong it fails to disprove claims that he personally intervened in the passport application of Srichand Hinduja.

Mandelson said the report had "fully cleared" his name and stressed that he now wants to get on with his life away from government.

"If we had had them at the time of the controversy, things would have been handled better by all concerned, including myself," said the Hartlepool MP.

"I am grateful that Sir Anthony Hammond and the prime minister have fully cleared my name which is all I ever wished and I want to close this unhappy chapter and get on with my life outside government."

Intervention

Mandelson, one of the key architects of new Labour, was forced to resign from the cabinet for a second time following claims that he had tried to intervene in SP Hinduja's passport application.

Although he has again been cleared of any impropriety, his dossier of evidence failed to clarify what happened in an alleged telephone call between Mandelson and the Home Office minister Mike O'Brien.

Mandelson had hoped to prove the call was made by his private office and not by himself as is alleged by O'Brien.

But the report does go further than before in stressing that Mandelson did not set out with any ill intent.

"If anything it reinforces my judgement that Mr Mandelson was concerned to act, and be seen to act, with propriety," said Sir Anthony.

The QC concluded that whether or not the phone call happened was "intrinsically insignificant".

"The new material does not provide any support for the existence of a telephone call. It is not possible to reach any firm conclusion about whether the call took place."

The Opposition described the new report as a waste of time and money.

Conservative leader Iain Duncan Smith said: "It is absurd to have spent hundreds of thousands of pounds on a disgraced ex-minister, especially after the disaster of Stephen Byers. The prime minister should be concentrating on our public services, the NHS, transport and schools, instead of just trying to protect and hang on to his friends. This has been a complete waste of money."

Liberal Democrat MP Norman Baker, whose Commons questions uncovered the passport row, said the new inquiry was irrelevant.

"This is a joke report - what Mr Mandelson or Mr O'Brien did or did not do is neither here nor there," he told BBC Radio 4's Today programme. "What we really need to have is an inquiry that looks at Labour's links with business."