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Lord Mandelson has outlined an "interventionist strategy" in which the government will subsidise the expected growth industries of the future.
In an interview with the Independent, the business secretary explained that the new state strategy aims to create hundreds of thousands of jobs in hi-tech and low-carbon industries over the next decade.
The drive, set out in the government's new industrial policy document, marks a move away from New Labour's free-market approach.
"If markets fail or don't work efficiently, government has a role to play – as we saw in the financial markets," Lord Mandelson said. "The government's job is not to substitute for markets of displace the private sector."
The business secretary said the plan was not designed to bailout the past but to remove the barriers to "investing in the future".
Projects to receive government investment include wind, wave and nuclear power alongside electric and hybrid cars. Also set to be included for "green funding" are the digital communications, pharmaceuticals and business services industries.
"It is not enough to limit the damage of the recession, however vital it is," Lord Mandelson said.
"We need also to provide a vision of the opportunities and advantages of the UK in the world economy at the upturn and beyond."
The strategy was structured in response to criticisms from businesses that other countries have done more to aid home-grown industries.
Lord Mandelson insisted the strategy would not mean "economic nationalism" as the government would continue to support open markets and free trade.
He stated: "Government has to act as other governments do, in removing the barriers holding business back."
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