Lord Mandelson issued a stark warning to unions and MPs opposing his Royal Mail sell off plans: back me or put postal services at risk and let the Tories snatch power.

The business secretary attacked the "scare tactics" of critics of moves to bring in a private, probably foreign, investor to shore up the firm while the Government takes on its massive pension deficit.

The issue looks set to land Gordon Brown with his biggest rebellion as Prime Minister, with 137 of his MPs already signed up to a critical motion, including at least seven ministerial aides.

He refused to give way yesterday, robustly defending the plans despite being jeered by postal union protesters as he arrived to speak at a Labour National Policy Forum meeting in Bristol.

Cabinet ministers are also believed to have urged the PM and Lord Mandelson to abandon such an unpopular policy at a time of economic crisis.

But the Trade Secretary, who has already offered concessions such as guaranteeing the universal service in law, told The Observer there was no alternative.

"A number of Labour MPs who do not have an ideological fixation one way or the other nonetheless say to me: 'Why now? Why invite controversy and disunity?'," he said.

"And my answer is that, as the Government, we cannot duck difficult questions and choices.

"Some in the party may be weary of taking decisions but that simply signals that we're ready for a rest, inviting electoral defeat."

He went on: "They may succeed in defeating the legislation but in the process they'll defeat the turnaround in finances. They will defeat our ability to sustain the universal service. They'll defeat the pension bail out."

He accused union critics, led by the Communications Workers Union (CWU), of using "scare tactics" such as talking about "privatisation" that failed to represent ordinary postal workers and risked losing the party votes.

"I think a lot of the workforce of the Royal Mail won't be thinking of the politics of this but about their pension and their job security. Both are in danger if we do not sort out the finances of the Royal Mail," he told the newspaper.

"I realise the point of the propaganda is to scare the public and to reduce support for what we are doing. But that also runs the risk of costing Labour a lot of votes."

Mr Brown said he would listen to the concerns of unions and Labour MPs.

But at a time when there was a huge demand for funds to get the country and public services across the board through the recession, there was no option but to seek outside help, he told them.

"I know this is difficult ... we will continue to talk and address the concerns people have. But I assure you the Government is looking at how we can best prepare for the future, not only of the Royal Mail but the future of all public services in the country,"

Billy Hayes, general secretary of the Communication Workers Union (CWU), said the Government plan would "nationalise the pension fund and privatise the profit".

"Why fix the pensions, take on £27 billion of assets and then give the benefit of that to a company like TNT?," he asked. "The British public don't want their post office owned by a Dutch company or a German company."

But Mr Brown urged critics to face facts: "I think we all recognise that the Royal Mail, which is part of the fabric of our country, faces huge challenges.

He went on: "I do say to you that guaranteeing a £25 billion pension fund, spending £1.9 billion on the post office network, maintaining a universal service obligation can be achieved if we make the investment that is necessary to secure the Royal Mail for the future.

"And that is what's behind our proposals to get someone to help us invest so that we can prepare the Royal Mail for the international and national challenges ahead."

Commons Leader Harriet Harman called for a "calm debate" to find a solution to the row.

She has been reported to have been at the forefront of internal Cabinet dissent on the issue and is said to have tried unsuccessfully to have blocked the legislation.

Ms Harman refused to disclose details of the behind-the-scenes negotiations but told BBC's Andrew Marr show that Cabinet meetings involved "robust discussions".

"We cannot allow the Royal Mail to slide; we have to take some action," she said.

"Most of the action people agree with. There is an element which is controversial and we need to go about that with a calm debate, respecting each other's point of view, reaching agreement."

She went on: "Together with the unions, in unison, we will actually talk about these issues and find our way forward. But we are in no doubt that we do need to act because we need to secure the future of the Royal Mail."

Asked if ministerial aides would be punished if they voted against the Government. she said: "They are raising their concerns and they need to be reassured and, as the Bill goes through the House of Lords, then the Prime Minister has made clear there will be consultation, there will be discussion, there will be debate, we will be seeking to bring about that reassurance.

"But one thing we can't do is simply allow the Royal Mail to decline."

Shadow chancellor George Osborne pledged the Tories' support for the part-privatisation and highlighted Ms Harman's "lukewarm" backing as a sign of internal Labour tensions.

Gordon Brown will need Opposition support to get the proposals passed should the MPs signed up to the rebel motion not be persuaded to reverse their stance.

"Harriet Harman was very lukewarm in her support. She couldn't be pressed to say 'I actually back these proposals' so there is a lot of division in the Cabinet," Mr Osborne told BBC1's Politics Show.

"Of course we will scrutinise the decisions they take but the overall direction is correct and they must not bow to their rebels and their union paymasters.

"Peter Mandelson is doing the right thing. He should ignore the voices off in Cabinet, he will have the Conservatives' support to do the right thing."