Vince Cable has described his own department's plans to scrap regional development agencies in England as "a little Maoist and chaotic".
But he stressed that it would hand power back to local councils and would create a "resurgence in civic pride".
A spokeswoman said the business secretary was speaking in a private capacity when he made the comments.
But Labour said it showed the government's plans for regional development were a "mess".
Speaking at the annual dinner of the Lunar Society, a debating society in Birmingham, Mr Cable is reported to have said: "Getting rid of the RDAs and bringing in LEPs (Local Enterprise Partnerships) has perhaps been a little Maoist and chaotic, but overall we're giving back to councils and local authorities the powers and incentives they need to see a resurgence in civic pride."
Scrapping RDAs without "strong local support" and handing their functions to local authorities - in order to save cash and cut red tape - was in the Liberal Democrat election manifesto.
But the policy, which is also a key part of the Conservatives' commitment to "localism", has met with protests from some in industry, who say it will hit the ability of English regions to attract major foreign investment and so harm their chances of economic recovery.
CBI Director General Richard Lambert has described the way the quangos are being dismantled as a "shambles" - and small business minister Mark Prisk has said it has caused "strong concern" among business leaders.
Shadow business secretary John Denham, for Labour, said: "It is becoming impossible to find anyone who will say a good word about the government's so-called plan for regional growth, even their own ministers.
"While Vince Cable shows some honesty at the mess he is overseeing, this is little comfort for businesses which are experiencing uncertainty and chaos.
"Far from supporting growth, the government is harming the prospects of job creation and economic development - it is a damning failure."
He claimed Mr Cable was "at odds" with communities secretary Eric Pickles, who has been at the forefront of the coalition's plans to axe quangos and return power to local authorities.
A spokeswoman for the business department denied the process was in disarray.
She said: "We are determined that the transition from the Regional Development Agencies to new local economic development structures will be orderly, working to a clear timetable which leads to their closure in March 2012.
However, total reform on this level is never easy, which is why we are working closely with all the RDAs to ensure that the transition programme runs as smoothly as possible.
"And we are also working closely with the new Local Enterprise Partnerships as they establish themselves."