Andy Burnham has stripped responsibility for economic growth from the Treasury and handed it to his new No10 North.
The Prime Minister said Chancellor John Healey was fully supportive of the move, which he described as part of a 'huge transfer of power' away from Whitehall.
No10 North - a Downing Street branch set up by Mr Burnham at Heron House in Manchester - has been dismissed as a 'gimmick' by the Tories.
But the PM, who was previously Greater Manchester mayor, insisted it was not a mere 'satellite office, or just somewhere for me to work where I'm nearer home'.
He suggested, under his changes, the Treasury would focus on controlling the public finances while No10 North would lead on his 'growth mission' for the country.
'It is actually a huge transfer of power,' Mr Burnham The Times. 'It's something that the country has never cracked before.
'I don't wish this to sound, you know, a criticism or negative about the Treasury. There's a job to be done around control of public finances. It's just the dual job of growth and control of public finances (that) sometimes clouds the growth mission.
'And particularly having No10 leading on that growth mission means you've got maximum power to unlock the blockages where they exist in the wider Whitehall system. No10 North has been constructed with that thought.'
Andy Burnham has stripped responsibility for economic growth from the Treasury and handed it to his new No10 North
The Prime Minister said Chancellor John Healey was fully supportive of the move, which he described as part of a 'huge transfer of power' away from Whitehall
Mr Burnham compared No10 North to the Department of Economic Affairs, which was established by ex-Labour PM Harold Wilson in 1964 to split the functions of the Treasury but proved short-lived amid economic crisis.
'I just wish people might just engage with the seriousness of the proposition,' Mr Burnham said.
The PM is expected to work at No10 North, near to where his family lives, for part of each week during his premiership.
Mr Burnham has pledged to bring 'good growth in every postcode' through his drive to push power out of Westminster.
He revealed that Mr Healey - who he is 'completely aligned' and in a 'really tight partnership' with - would give a major speech on the Government's economic agenda next month.
Mr Burnham will then unveil his 'ten-year plan' for Britain after the Budget on October 28.
He admitted his initial policy announcements since becoming PM on 20 July had not been 'earth-shattering' but that the public 'just want something to make life a little bit better' and had been waiting for a 'sense of action' from Downing Street.
The PM said the biggest adjustment to life in No10 was 'the relentlessness of it and the scale of it', while he confessed the furious row over the early release of prisoners had led to a 'bumpy' introduction to his premiership.
But Mr Burnham said Justice Secretary Alex Norris would present a 'much better solution' on September 1 as the Government scrambles to block two of PC Andrew Harper's killers from being freed in January under previous plans.
Asked if he was prepared to be disliked, the PM criticised some politicians who he said made a 'fetish' out of being 'tough' and 'masochistic'.
'Isn't the job to be popular by making people's lives better?' he said. 'Isn't that what you should be doing? I'm very pleased with the start that we've made.
'We just need this to be a better period than we've had for a while.'
Housing Secretary Angela Rayner on Wednesday morning insisted Mr Healey had not been pushed aside by No10 North taking responsibility for economic growth.
Asked by Sky News whether it was a demotion for the Chancellor, Ms Rayner said: 'Not at all, no. The Chancellor is working really hard with the PM, with myself and other Cabinet colleagues.
'You'll have seen the statement that the cabinet made I think now two weeks ago, where we were really clear on our intent to put devolution and community empowerment at the heart of this Government.
'So we saw in Greater Manchester, where Andy had more powers, we saw the economy growing faster than the rest of the UK, and the PM said he wants to see that growth in every postcode.
'So working with No10 North around how we devolve and work with businesses, with local partners to drive that economic investment in local areas, because they know what their economy is like, they know what the challenges are that they face, but they feel powerless at times when the power is so centrally controlled in Whitehall.
'And what we're all saying, including the Chancellor, is that we're going to work with partners to ensure that they feel empowered in this process, so they can drive their local economies.'
David Gauke, a former Tory Treasury minister, said Mr Burnham's plans to move responsibility for economic growth away from the Treasury would be a 'big mistake'.
'The Treasury will always be the most important government department,' he posted on X.
'The objective should be to make HMT more focused on growth (& more capable of focusing other departments on growth) not less.
'I’d also question whether a new office - having to recruit afresh, miles away from the rest of the Government machine, with face-to-face access to the PM at best one day a week (& barely at all for other ministers) - is well-placed to drive forward a dynamic growth agenda.'