Sir Keir Starmer has apologized to the victims of Jeffrey Epstein for believing Lord Mandelson's lies and appointing him as the UK's ambassador to the US.
The prime minister began a planned speech on funding to improve local communities by addressing the growing anger over how he had dealt with the issue.
While he acknowledged it had been publicly known for some time that Lord Mandelson knew Epstein, he said: None of us knew the depths and the darkness of that relationship.
However, Conservative leader Kemi Badenoch said the PM's position was untenable, while the Liberal Democrats called for a confidence vote to see if Labour MPs supported him.
The prime minister is facing calls from some of his own MPs to stand down.
While the handful of backbenchers to do so publicly are frequent critics of the PM, many more have raised concerns privately.
Sir Keir's former political director Luke Sullivan said he thought the PM was fighting for his premiership.
Seeking to defuse the row in a speech earlier, Sir Keir said he regretted appointing Lord Mandelson and would not have done so if he had known what he knows now.
Directly addressing Epstein's victims, he said: I am sorry, sorry for what was done to you, sorry that so many people with power failed you. Sorry for having believed Mandelson's lies and appointed him and sorry that even now you're forced to watch this story unfold in public once again.
Sir Keir has promised to release files, which he says will prove Lord Mandelson lied about the extent of his friendship with Epstein when he was being vetted for the US ambassador role.
After a Commons vote, the government will pass documents which could damage national security or diplomatic relations to Parliament's Intelligence and Security Committee (ISC), rather than withholding them.
The ISC says the government should decide which documents are made public - and which are not.
The PM said Lord Mandelson was asked directly about the nature of his relationship with Epstein before he was appointed as ambassador, whether he had stayed at his home after his conviction and whether he had accepted gifts and hospitality from him.
The information now available makes clear that the answers he gave were lies, he said, adding that Mandelson portrayed Epstein as someone he barely knew.
The BBC understands Lord Mandelson's view is that he answered questions about his relationship with Epstein in the vetting process accurately.
Challenged after his speech about whether he should stand down as PM, Sir Keir said he understood the anger and frustration amongst Labour MPs over Lord Mandelson.
However, he added: I was elected on a mandate in 2024 to change the country for the better... that's what I intend to do.
The fallout continues as Labour party members express their discontent with Starmer's leadership decisions and the implications of Mandelson's connections with Epstein come under scrutiny.
