The government's Commons defeat over the Gurkhas shows Gordon Brown is "rapidly running out of political authority", David Cameron has said.
The Conservative leader said Mr Brown had "misjudged the public mood" over the restrictions imposed on which Gurkhas allowed to settle in the UK.
Labour lost a vote on the issue, the first major defeat under Gordon Brown, after 27 of its MPs rebelled.
Mr Cameron said the defeat capped a damaging few weeks for Mr Brown.
Lord Mandelson admitted it was "turning into a bit of a week" for Labour but denied the prime minister was losing his authority.
He said Mr Brown was right to be taking the initiative over issues such as reforms of MPs' expenses.
'Misjudging mood'
A sequence of events showed Mr Brown's authority was damaged, Mr Cameron said at his monthly news conference.
Last week's Budget showed the government was "running out of money" while the Damian McBride e-mail scandal indicated an administration "running out of moral authority", he said.
The prime minister misjudged the public mood and what was right
David Cameron
The government had also been forced into a number of policy U-turns over issues such as Titan prisons, he added.
The Conservatives and Liberal Democrats united to inflict a shock defeat on Labour over the Gurkhas as a large number of Labour MPs either voted against the government or abstained.
"The prime minister misjudged the public mood and what was right," Mr Cameron said of the vote.
He urged the government to accept Conservative proposals to reform immigration policy to allow all Gurkhas who served in the British army before 1997 to be able to come to the UK.
The Liberal Democrats have also calling for all Gurkhas to get equal right of residence.
In addition to the Gurkhas, Mr Cameron said there were other areas where the two main opposition parties could "co-operate" together, such as the environment and civil liberties.
However, he stressed there were still areas of "big disagreement" between the two parties - notably on Europe.
Economic challenge
On the economy, Mr Cameron said it would be the political party which best understood how to cope with the changed economic climate which would deserve to win the next election.
The Conservatives are reviewing all their public spending commitments, with Mr Cameron suggesting a "new era of thrift" in government is needed to restore public finances to health.
But he rejected suggestions that this would leave the Tories having to take "nasty" decisions on spending cuts and tax rises that would effectively derail other proposed reforms.
If people viewed the Conservatives as just "a bunch of accountants" the party would have failed, he said.
The Conservatives had to show their policies for reforming public services to give more power to people were consistent with ensuring the government lived within its means, describing this as an "exciting challenge".
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PM 'losing authority' - Cameron
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