Blair, who converted to Catholicism last year, made the call in a lecture on faith and globalisation at Westminster Cathedral, the first in 'The Cardinal's Lectures' series organised by Cardinal Cormac Murphy-O'Connor to examine faith and life in Britain.
"For religion to be a force for good, it must be rescued not simply from extremism, faith as a means of exclusion; but also from irrelevance, an interesting part of our history but not of our future," said Blair.
"Faith is reduced to a system of strange convictions and actions that, to some, can appear far removed from the necessities and anxieties of ordinary life. It is this face that gives militant secularism an easy target," he added.
Blair declared his strong desire to "awaken the world's conscience" to widespread poverty, illiteracy and poor health, and said that the Tony Blair Faith Foundation would set the Millennium Development Goals as one of its priority areas for engagement when it launches next month.
The foundation will bring together different faith organisations to foster friendship and understanding, and harness people of faith as a force for good in the modern world.
Last night's faith speech was a turnabout from Blair's recent admission that he dodged questions on his faith whilst in office because "you may be considered weird". When an American journalist once asked Blair for his religious views, the former prime minister's atheist spin doctor, Alistair Campbell, famously blurted, "We don't do God."
The director of public theology think tank Theos, Paul Woolley, welcomed Blair's speech. Its director Paul Woolley said that Blair was right to urge politicians not to dismiss religion as out-of-date or extreme.
"The theory of secularisation has been widely discredited," he said. "The reality is that religious faith will play an increasingly significant role in society and not simply due to radical Islam.
"The return of civil society, the emerging political interest in well-being and the growth of identity politics all point towards a greater role for God in the public square.
"Mr Blair recognises this and is to be congratulated on establishing his new Faith Foundation."
Theos was launched in 2006 with a report entitled 'Doing God: A Future for Faith in the Public Square'. The report, which included a foreword by Cardinal Cormac Murphy-O'Connor, considered the growing role of religion in society and politics.