Business leaders and lobbyists could barely conceal their delight at the appointment as Business Secretary of a man who has actively and enthusiastically embraced the “filthy rich” – at the cost of his own political career.

Peter Mandelson’s return was immediately embraced by the City, jubilant that the long-rumoured removal of John Hutton did not mean someone more hostile taking the brief.

The CBI, British Chambers of Commerce and Federation of Small Businesses all praised Mr Mandelson. Several business leaders highlighted his time in Brussels attempting to negotiate a free-trade deal and resisting the imposition of the Working Time Directive, prompting one lobbyist to describe his reaction to the appointment as “orgasmic”.

But the appointment of the former Trade Commissioner – who was forced to resign twice through his entanglements with multimillionaires – prompted criticism from union leaders and some MPs, who questioned whether his own relationship with money was entirely healthy.

Vince Cable, the Liberal Democrat Treasury spokesman, said: “Given this was someone who defined the Blairite indulgence of the super-rich, it seems odd to put him in charge of economic policy at this time.”

Ian Gibson, a Labour MP, said he feared that Mr Mandelson had shown himself to be a “bit blasé” about money. “At a time when things are changing in the way people perceive the City, it is a surprise to bring into government someone who spends a lot of time with the rich and famous. All I can remember of Peter Mandelson was the time he spent in the Kings Road and Chelsea.”

Mr Mandelson lasted only five months at the helm of the Department for Trade and Industry (DTI), resigning in December 1998 after the disclosure that he had accepted a £373,000 loan from the Paymaster General, Geoffrey Robinson, to buy a house in Notting Hill. Mr Mandelson disclosed that he had not told Tony Blair about the loan.

His second appointment, as Northern Ireland Secretary, was also short-lived. He left in January 2001 after it was alleged he had intervened on behalf of Srichand Hinduja, a businessman and sponsor of the faith zone in the Millennium Dome, who was seeking a British passport. Mr Mandelson still protests his innocence in the affair, and was cleared by the inquiry.

He blamed his exit on a failure to get “on top of the facts”, which led to differing stories being given to the media by him and Alastair Campbell, who was still Mr Blair’s director of communications.

His strong links to industry will be scrutinised in the weeks to come. He has enjoyed a lifelong friendship with Lord Stevenson of Coddenham, the chairman of HBOS. As Business Secretary he will have to keep a close eye on the takeover by Lloyds TSB of HBOS, which was pushed through by Mr Brown last week.

John Cridland, deputy director-general of the CBI, said: “John Hutton has succeeded in giving the new Department for Business a sense of mission and drive that was lacking at its predecessor, the DTI. “The Department for Business must have a heavy-weight political big hitter at the Cabinet table, and we are encouraged that Peter Mandelson is returning to this role.”

David Frost, director-general of the British Chambers of Commerce, said: “Peter Mandelson did a good job at the DTI and clearly understands business. His work in Europe and involvement in global trade discussions also mean that he knows where the UK fits within the international context. We look forward to working with him in these challenging economic times.”

The unions, which urged Mr Brown to remove Mr Hutton, were privately furious over the choice of Mr Mandelson, but most declined to comment. Several union officials said that they were “too shocked” to comment. Charlie Whelan, the arch political foe of Mr Mandelson and now political director of Unite, refused to be drawn, saying that he was busy walking his dog.

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