The Prime Minister has dismissed a call by the Labor elder Bob Hawke to slash the power of unions within the ALP.

Julia Gillard defended the factional and union influences that were responsible for the destruction of Kevin Rudd's leadership in 2010.

Mr Hawke, a former prime minister and boss of the ACTU, said in an interview with the Fairfax publication The Australian Financial Review that while his ''first love'' was the trade union movement, its influence over the Labor Party had grown to ''suffocating'' proportions.

But yesterday Ms Gillard said the unions were the champions of ''working Australians''.

''I believe our great trade union movement is important to Australian society and to representing the needs of working people,'' she said.

''It was the trade union movement, shoulder to shoulder with the Labor Party, that fought back and got rid of Work Choices.''

Responding to Mr Hawke's advice to the ALP to recognise the perceived negative association with the unions, Ms Gillard said the matter had been adequately addressed at the party's national conference last month.

She tried to soften the public rebuke to Mr Hawke, once the nation's most popular leader, saying he was an important part of the ALP's history.

''Bob Hawke is, of course, a living legend,'' she said. ''Bob is right to say that the Labor Party needs to keep modernising.''

His criticism of undue union influence within the ALP mirrored the view of another former prime minister, Kevin Rudd, who savaged the power of the unions and factions in a speech to the national conference.

Mr Rudd said the party had failed to take any significant steps to rein in the power of factions and union bosses.

''While some claim we have moved forward on party reform, the truth is we have barely moved at all,'' Mr Rudd said.

''The stark alternative remains: either more power to the factional powerbrokers or more power to the 35,000 members of the Australian Labor Party.''

An internal review by the former premiers Steve Bracks and Bob Carr and Senator John Faulkner recommended a guaranteed say for unions and Labor supporters in party preselections and aired dire warnings that the party faced a membership crisis.

Senator Faulkner has repeatedly warned that the ALP risks a wipeout of its membership - as ''a small party getting smaller, [and] an old party getting older''.

Ms Gillard welcomed the review but resisted the suggestion that the unions be given a say in policy and parliamentary decisions.

''As Labor leader I will insist on the right to freely choose the executive of the federal parliamentary Labor Party,'' she said at the time of the review's release. ''I have chosen my team of ministers and parliamentary secretaries and I will continue to do so.''

Mr Hawke also addressed the leadership question that continues to dog Ms Gillard, saying he believed she was the best person for the job.

''I don't think they should change leaders,'' he said. ''There has been a lot of criticism of Julia, but you have got to give her credit for a lot of achievements and tenacity.

''She has shown a lot of courage and determination, particularly on the carbon tax and the mining tax. When those things are bedded down they may even become positives.''

Ms Gillard has refused to address questions about the leadership this year, telling reporters on New Year's Day to ''check the transcripts'' of last year for her answer.

It is more than 20 years since Mr Hawke was prime minister of Australia but the ''Silver Bodgie'' has enjoyed a resurgence in the media, most recently in a renewed spat with the former prime minister Paul Keating.

The pair showed the passing of time had done nothing to ease the rancour in their relationship, with Mr Keating this week blaming Mr Hawke for the wage explosions of the 1970s.

Mr Keating said that Mr Hawke, as the ACTU national secretary, had ''nearly destroyed the economy twice''. The spat coincides with the release by the National Archives of the 1982 and 1983 cabinet documents.

Gillard Rebukes Hawke On Unions