Peter Mandelson has returned to the cabinet just 10 months after he resigned over a secret home loan, replacing Mo Mowlam as Northern Ireland Secretary.

The news was the first change to emerge from what has turned out to be a major cabinet reshuffle.

Another key move was Cabinet Office Minister Jack Cunningham's decision to resign from the government.

He is replaced by Dr Mowlam, who had been widely tipped for health when she left the Northern Ireland Office.

The two big promotions are for Alan Milburn, who goes from the Treasury to become health secretary, and Geoff Hoon, who is lifted from the junior ranks of the Foreign Office to become defence secretary.

In a surprise move, Mr Hoon replaces George Robertson, who is leaving to become Nato secretary general, instead of Scottish Secretary John Reid.

But the return of Mr Mandelson less than a year after he quit the cabinet is certain to remain the focus of the reshuffle even after all the other moves are unveiled.

Mr Mandelson is a key figure in New Labour mythology because of his success masterminding the 1997 general election.

He arrived at 10 Downing Street around lunchtime and left with Dr Mowlam shortly afterwards. Neither made any comment, but the new Northern Ireland secretary nodded and winked at the amassed photographers.

He later described himself as "delighted" at having returned to government.

Mr Mandelson stressed the commitment of both Mr Blair and himself to the Northern Ireland peace process.

"My own appointment today by the prime minister will demonstrate the government's absolute and unwavering commitment to finding peace in Northern Ireland," he said.

He resigned on 23 December last year, a day after it emerged he had taken a �373,000 loan from former paymaster general Geoffrey Robinson.

Unionist politicians in Northern Ireland have already welcomed his appointment, despite the inevitable controversy.

They had become extremely unhappy with Dr Mowlam's stewardship of the peace process and regard Mr Mandelson as both someone who can get things done and a man with a direct line to the prime minister.

These will be crucial attributes if he is to succeed in getting the Northern Ireland peace process back on track.

But the Conservatives have insisted Mr Mandelson's speedy return to government is solely down to his close relationship with the prime minister.

Tory chairman Michael Ancram described the appointment as a "triumph of cronyism over credibility".

He also wondered why the prime minister had looked to lesser-known colleagues to head crucial ministries such as health and defence.

"The fact he's promoted to the cabinet people nobody has ever heard of suggests there isn't a great deal of talent," Mr Ancram said.

Alan Milburn: Rapid promotion for Blairite minister

This reshuffle has been viewed as Mr Blair's chance to make drastic changes, which he ducked in a previous shuffling of his pack at the start of the summer.

Then he kept Dr Mowlam in place as Northern Ireland Secretary, despite pressure from unionists to replace her in the province.

But the "Mo must go" campaign did not abate and now Mr Milburn, formerly chief secretary to the Treasury, has taken the health job.

Promoted in the fall-out from the resignation of Mr Mandelson last year, Mr Milburn was formerly minister of state at the Department of Health in charge of building new hospitals using the private finance initiative.

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The other changes in the reshuffle are:

• Tessa Jowell becomes Minister of State at the Department for Education and Employment
• Yvette Cooper replaces Ms Jowell as the Public Health Minister, but at the Parliamentary Under Secretary level rather than as Minister of State.
• Junior Health Minister John Hutton moves up to Minister of State in the Department of Health but retains responsibility for social services.
• Keith Vaz replaces Mr Hoon as Minister for Europe in the Foreign Office
• Jane Kennedy moves to Mr Vaz's previous job as Parliamentary Under Secretary in the Lord Chancellor's Department