Jon Cruddas has warned the top of the party wields a "profound dead hand at the centre" that blocks plans, according to a Sunday newspaper.
A recording of the head of the party's policy review made at a meeting of the left-wing Compass group captured him attacking recently announced Labour plans to cut the Jobseeker's Allowance for 18 to 21-year-olds as "punitive".
Mr Cruddas warned the "clock is ticking" but raised fears interesting ideas were "not going to emerge through Labour's policy review".
Labour is preparing to set out its vision for rebuilding Britain through major reforms of the state and big business in a series of events over the next week.
The party will reverse a century of centralisation by diverting £30 billion of funding to create "powerhouse" English cities and counties, Ed Miliband has said.
As well as pulling together plans on tackling "broken markets", changes to the welfare system and a crackdown on tax avoidance, it will lay out the results of former transport secretary Lord Adonis's review on growth polices.
Labour is already committed to increasing devolution of powers over housing, transport and skills to English cities and regions, but is now setting the amount of cash it would transfer from Whitehall to £30bn over five years.
Party sources said the plans were a "determined and resolute break with the past" - not just with the actions of the Coalition Government but the previous Labour administration as well.