In an apparent attack on the "hard left" stance of Jeremy Corbyn's party, the former prime minister said the vision being offered by Labour is losing them middle ground voters.
His remarks were made in an interview with the Observer to mark twenty years since his 1997 landslide election victory.
Mr Blair told the newspaper that the party must not go back to 1983, where it was thought there would never be another Labour government.
He added: "One of the remarks that really made an impact on me in the 1980s was when Michael Heseltine was asked whether Labour would win again.
"And he said: 'Labour will win when it wants to'. And I thought at the time that was a very profound remark, because the Labour Party can win at any point in time it wants to get back to winning ways.
"It's just got to make a decision that it's going to do it."
And in an apparent dig at the "hard left" stance of the current Labour Party, Mr Blair said this, coupled with a "hard Brexit Tory party" will make people "homeless".
"If from the progressive side of politics you offer people a vision that looks like the past, then I am afraid you'll lose that group of people in the middle who would be prepared to go for you provided they felt you understood the modern world," he added.
Praising the centrist and French presidential candidate Emmanuel Macron as a "very smart capable guy", Mr Blair suggests Labour could learn a thing or two from his success.
"The broad lesson is, the centre ground is still strong and if you provide people with a progressive centre-ground alternative, they'll vote for it," he added.
Questioned by the newspaper on suggestions he is worth Â£50 million or Â£30 million, Mr Blair said it is neither of the amounts and "a lot less".
He said he has very nice homes in London and the countryside, both with significant mortgages, adding: "The equity in those is the bulk of my wealth. I have given away more than I am worth."