The return of Peter Mandelson to the Cabinet as head of the Business Department drew praise from industry leaders but astonishment from left-wingers and trade unionists today.

The return of Peter Mandelson to the Cabinet as head of the Business Department drew praise from industry leaders but astonishment from left-wingers and trade unionists today.

The man who has resigned twice as Cabinet minister is no stranger to controversy and his shock appointment led to disbelief and praise in equal measure.

Labour MP John McDonnell said he was "absolutely gobsmacked" at Mr Mandelson's return to Cabinet, adding: "The whole Labour movement will be utterly perplexed at what the Prime Minister's motives are.

"This is an extraordinary step backwards into the worst elements of the Blair era, to reinstate possibly the most divisive figure in Labour's recent history."

Several union officials asked for their reaction said they "too shocked" to comment.

The Communication Workers Union said Mr Mandelson was an experienced politician who had steered through legislation on the postal industry during his previous time at the Trade and Industry Department (DTI).

"He again faces many big challenges and we look forward to working with him," said a spokesman.

Business groups widely welcomed the news that Mr Mandelson will replace John Hutton.

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. In particular, he has taken decisive action to try to deliver energy security of supply in the future.

"The Department for Business must have a heavyweight political big hitter at the Cabinet table, and we are encouraged that Peter Mandelson is returning to this role."

John Wright, chairman of the Federation of Small Businesses, said: "This shock return is no surprise to us, given Mr Mandelson's previous tenure at the DTI and his current position as Britain's European Commissioner for Trade.

"Mr Mandelson's experience will mean that he can do away with the probationary period and get straight into the business of dealing with the current credit crunch.

"We will be seeking an early meeting with him in order to convey some very easy-to-implement measures to safeguard the future of small businesses during these difficult times."

Martin Temple, chairman of the Engineering Employers Federation, said: "John Hutton was a good advocate fighting for business across Whitehall and it was important that they replaced him with a big hitter - which Mr Mandelson certainly is.

"His experience as EU Trade Commissioner, and having previously been at the old DTI, should be invaluable in ensuring that business continues to have a strong voice at the Cabinet table."

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."

MEP Syed Kamall, Conservative trade spokesman in the European Parliament, said: "Peter Mandelson has generally decent views on free trade and did stand up to Sarkozy and other protectionists across the EU. Unfortunately he was unable to deliver a great deal.

"The EU is at a critical juncture in the battle between those who want free trade and those who would build a wall around our coastline.

"To replace Peter Mandelson now risks giving the protectionists in Europe an even stronger arm, which would be devastating at a time of already heightened economic nationalism."

Welcoming the appointment of Geoff Hoon as the new Transport Secretary, Michelle Di Leo, director of pro-airport expansion group FlyingMatters, said: "We urge Mr Hoon to build on Ruth Kelly's strong track record of making aviation policy decisions in the national interest - particularly at a time of economic uncertainty when we need to develop our trading routes in the global economy to encourage continued inward investment and secure jobs."

Ex-Labour MP Tam Dalyell, former father of the Commons, said: "I am absolutely delighted. Peter Mandelson was a very effective Cabinet Minister, both in Northern Ireland and other portfolios. On top of that, he has unique experience in Europe and I think this is a superb appointment. I am 100% delighted.

"I have this volcanic reaction partly because he knows a heck of a lot about it and partly because he will carry great weight with the Prime Minister. All the old baggage is past history."

Freight Transport Association chief executive Theo de Pencier said: "Mr Hoon takes on the transport portfolio at a critical time for the logistics industry.

"The credit crunch, overseas competition and, of course, the high rates of fuel duty are all taking their toll on an industry which keeps British business moving.

"We will be looking to Mr Hoon to show leadership and to value the vital role that logistics plays in delivering the UK's economy."

Liberal Democrat MP Norman Baker (Lewes) said: "It is astonishing to see Peter Mandelson back in government yet again. It seems no matter how many times he is wrapped in chains and thrown to the bottom of the Volga, up he pops again.

"True to form, he is attempting to gain power again and, this time, without any accountability to the electorate.

"As a member of the House of Lords, he will not be subject to the usual scrutiny in the House of Commons at Question Time."

Labour MP Peter Kilfoyle (Liverpool Walton) said: "I fully support the principle of reshuffling Cabinet in order to make it better prepared to meet the needs of the forthcoming election.

"However, I believe that the recall of twice disgraced former MP Peter Mandelson is a thoroughly retrograde step which will do nothing to promote unity within the Labour Party.

"On the contrary, the appointment is highly divisive, and he remains a highly divisive figure within the Labour movement."

Author Robert Harris, a friend of Mr Mandelson, said: "I spoke to Peter yesterday and he wondered whether it was the right move for him to make but in the end I think he felt that he had to come back.

"If you are asked by the Prime Minister to do a job like that you have to do it.

"What it says to me is that the economic conditions are likely to get extremely tough next year and Gordon Brown is willing to reach out to virtually anyone to try and help steer the country though it."

He said Mr Mandelson was aware of the "storm" that would surround his appointment.

He told BBC Radio 4's The World at One: "I think there is a risk for him, there is a risk for the Government, but I think this is a time for risks.

"No-one, not even Peter's worst enemy, and there is quite a lot of competition for that position, has ever denied that he wasn't an extremely good minister and that is why he has come back."