Starmer is facing what is widely seen as the biggest crisis of his 18 months in power over his decision to send Mandelson to Washington DC in December 2024, after files showed the extent of Mandelson's relationship to the late sex offender Jeffrey Epstein.
McSweeney, Starmer's closest adviser and widely seen as one of the architects of Starmer's success in the United Kingdom's July 2024 election, said in a statement that he had been closely involved in the appointment of Mandelson.
"The decision to appoint Peter Mandelson was wrong. He has damaged our party, our country and trust in politics itself," McSweeney said in a statement posted on X by political correspondents.
"When asked, I advised the Prime Minister to make that appointment and I take full responsibility for that advice."
Starmer had fired Mandelson in September from his ambassadorial job over earlier revelations about his Epstein ties.
But critics say the emails recently published by the US Justice Department have brought serious concerns about Starmer's judgment to the fore.
They argue that he should have known better than to appoint Mandelson in the first place.
Documents published as part of a huge trove of Epstein files made public in the United States suggested Mandelson sent market-sensitive information to the convicted sex offender when he was the UK government's business secretary during the 2008 financial crisis.
Starmer's government has promised to release its own emails and other documentation related to Mandelson's appointment, which it says will show that Mandelson misled officials.
Mandelson, a former cabinet minister, ambassador and elder statesman of the governing Labour Party, has not been arrested or charged.
Opposition Conservative leader Kemi Badenoch said on X Starmer should "take responsibility" for his actions.
"It's about time. But once again with this PM it's somebody else's fault: 'Mandelson lied to me' or 'Morgan advised me'.
"Keir Starmer has to take responsibility for his own terrible decisions. But he never does," she said.
Starmer thanked McSweeney for "his dedication, loyalty and leadership" on Sunday.
with PA and PA
