Blears suggests the government’s argument that the current policy benefits the economy holds little sway with voters, and says Labour risks appearing “unconcerned and out of touch”.

In an intervention which will surprise cabinet colleagues, she told The Sunday Times: “Labour must address people’s concerns about immigration head on.

“Simply making the ‘liberal’ argument that immigration is good for the economy, or starting from the viewpoint of ‘human rights’ does not give people the reassurance that politicians understand people’s genuine concerns.”

Blears has been alarmed by an internal analysis of campaigns by the Labour party in Keighley, West Yorkshire, where the British National party (BNP) is particularly active. The document, which has been seen by The Sunday Times, is being studied closely at Labour headquarters.

It says the party’s failure to address public concern about immigration is playing into the hands of both the Tories and the BNP and warns that Labour “will not be forgiven by the electorate” if it does not address the problem.

In a further warning to Labour, the report says the Asian community in Keighley is becoming “disengaged”. The threat is being taken seriously by Blears, who believes there is a risk that support for Labour from Asians is diminishing elsewhere in the country.

The document also questions the quality and performance of some Labour councillors in the area, describing some as “woefully inadequate”. It says potential Labour voters are defecting to the BNP, not because they are racist, but because they believe their “genuine grievances” are being ignored by mainstream parties.

Blears says her view is not “apocalyptic” and has told colleagues she is optimistic that her party can get its message on immigration right. But she said: “We must listen to people telling us they feel insecure and concerned about immigration. We must get the message out on every estate and on every street that we are enforcing firm but fair immigration controls.”

Blears’s warning comes after Tony Blair, the prime minister, declared that immigrants who do not like British values should leave the country. The home secretary, John Reid, has pledged to restrict the number of migrants from Romania and Bulgaria allowed to settle in Britain to 20,000 when the two countries join the EU in January.

The government’s “open door” policy to the new EU member states in 2004 has triggered the arrival in Britain of an estimated 600,000 immigrants.

“Immigration was hardly an issue for new Labour in 1997,” Blears said. “My message to colleagues is that from now on, addressing concerns about immigration must be at the heart of our dialogue with the people.”

The internal report from Keighley, written by Mark Taylor, a Labour party agent, sets out a “battle plan” to address public concerns about race and immigration in Keighley before the local elections next May.

It says the BNP ran a stronger campaign than Labour at a recent local by-election, with Labour councillors in Keighley “exposed as not having done enough”.

Blears is also examining the findings of a private presentation to senior Labour policy makers by the market researchers Ipsos Mori. Party strategists were told that 63% of people in Britain believe immigration laws should be much tougher.

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