The British state is no longer fit for purpose and political parties are "in danger of being past their sell-by date", Labour's policy review chief has said.

Jon Cruddas said Labour would have to harness modern technology and offer a more devolved system of administration to present itself as the "party of hope and modernity" at next year's general election.

He said digital technology meant central Government departments no longer had to be based in Whitehall but could move - with their ministers and senior civil servants - "closer to people".

Labour should seek inspiration from former prime minister Harold Wilson's "white heat" of technology speech in 1963, the year before he led the party to an election win, Mr Cruddas suggested.

In a speech to the Institute for Government setting out how Labour would approach being in office, Mr Cruddas said people felt a "sense of abandonment, dispossession, disenchanted by party politics".

"They are losing confidence in the ability of our public institutions to serve a notion of the common good.

"Those who take decisions on behalf of others, whether in the public or private sector, are too often unaccountable.

"People feel a sense of being locked out of government, and they know it."

Highlighting the need for change, he said the British political system had been left behind by devolution and the pace of technological advances.

"Never has government felt so inadequate nor our politics so small.

"Is our system of government out of date? The British state was designed in the industrial age of mass production and mass administration.

"It is no longer fit for purpose in this digital age of real-time innovation, cloud computing and rising popular expectations for rapid service delivery.

"Its power is built on a political union of our nations and once stretched across a global empire. Literally today, now it barely reaches Edinburgh. It's over-centralised and undemocratic.

"It needs a radical redesign and England needs a radical new deal of devolution."

But the problems were not just confined to Whitehall - the entire system of party politics was also in trouble, Mr Cruddas acknowledged.

"Our established political parties are in danger of being past their sell-by date. Their tribes are shrinking, their membership is declining, their hierarchies and bureaucracies too slow and cumbersome.

"Arguably they stifle innovation, creativity and initiative.

"Our political parties were once vital intermediary institutions between people and the state and in some parts of the country have become so disconnected from society that they can no longer fulfil this role properly."

He said a "new way of governing our country" was needed that recognises our "more federal union, which gives English, Scottish and Welsh people a stronger voice and more control over their lives and a new model of the state to do it".

"There are no magic fixes, but for the first time in history we have the technologies to help us achieve it," he said.

Labour has committed to a major programme of devolution and would also order every Whitehall department to relocate civil servants outside London in a decentralisation project.

Shadow chancellor Ed Balls has not put a figure on the number of officials he wants to move out of the capital, but said that Labour would "go further" than it did during its previous period in power, when a review by Sir Michael Lyons led to more than 20,000 posts being dispersed around the country

"Our new deal for England will push decision-making over transport, housing, regeneration, infrastructure, elements of welfare, public services closer to the communities they affect," Mr Cruddas said.

"And it will begin a dramatic redesigning of our British state and our economy."

He added: "For devolution to really work, we need big change in Westminster and Whitehall itself.

"Renewing the UK will require a new model of state, democracy and innovation. I just don't mean bolting this onto the existing one, I mean let's build an entirely new digital machinery of government alongside the existing state so that we can create an efficient system and transform the relationship between the citizen and the state."

Mr Cruddas said the Government Digital Service (GDS) could create "city nodes", focused on services in their own area but also specialising in an aspect of central government.

"GDS city nodes will focus on transforming services in their city regions, but they could also specialise in one aspect of a new distributed government platform on behalf of the nation.

"For example Birmingham could run the pan-UK digital platform for social care, or Manchester - planning, or Swansea - motoring, or Newcastle - tax or Liverpool - pensions."

In a sign that entire departments could move out of Westminster, Mr Cruddas said: "Improving services will mean that people running them - the ministers, senior civil servants, permanent secretaries, will need to be closer to delivers and users.

"In the pre-digital era we needed departments in Whitehall because we literally had to move files around on trolleys. We don't now, which means we can bring government closer to people."

He suggested a "digital charter - a modern Magna Carta" - to give citizens rights about the way their data is used.

Setting out how Labour could fight the next election, Mr Cruddas said: "In 1963 Harold Wilson defined Labour as the party of the white heat of the scientific revolution. To change society a technological revolution requires far-reaching changes in all our social and economic attitudes.

"I would suggest the digital revolution is Labour's opportunity to renew our country, transform our own party and lead the change to democratise our political system."

He added that Labour won in 1945, 1964 and 1997 by being "the party of hope and modernity".

Mr Cruddas said: "I think we can do that now if we really lock in a story about technological change, around digital connectivity, democracy, and power and agency and human well-being.

"There's a huge opportunity there which is also fiscally numerate. It's not, as some used to say about Labour in the 1980s 'invite the Russians in and abolish the police', it's something that is much more creative about what Labour could be in terms of its own renewal."

He repeated his view that the party's defeat in 2010 was its worst since 1918 and Labour had been damaged by the "gang wars and drive-by shootings" of the Blair-Brown era.