Republican dissidents have been blamed for a partially exploded device recovered from the grounds of Hillsborough Castle, Co Down, on Monday night.
The device was left in a hold-all near a wall about 800m from the house, but outside a security fence. It contained home-made explosives and a detonator. Security sources believe it might have been there for some time.
The castle is the official residence of the Northern Secretary.
British government sources yesterday played down the discovery as "a comparatively minor incident". A spokesman added: "It was found well away from the house. it was a small device, and I would not want to oxygenate the story by talking up what is a comparatively minor incident."
The Northern Secretary, Mr Mandelson, was at his London home at the time of the find. The discovery comes only a week after Prince Charles attended a garden party at Hillsborough Castle, where he met 2,000 victims of violence.
Police yesterday combed the grounds in a follow-up search but said security had not been breached. Detectives were trying to establish how long the device had been lying in the field.
Asked whether security at Hillsborough would be stepped up following the find, a Northern Ireland Office spokeswoman said that was "a matter for the police and the security forces."
A local Ulster Unionist MP, Mr Jeffrey Donaldson, said the find was evidence that paramilitaries were still active and urged the British government not to scale down troop levels any further. Last week a battalion of paratroopers was withdrawn from Co Tyrone, bringing troop levels in Northern Ireland to their lowest since 1969.
"This indicates an ongoing level of terrorist activity in this area. Clearly it is a matter of concern that they should be able to get so close to what is a very important location. It highlights the need to maintain an appropriate level of security given the significant threat posed by terrorist organisations," Mr Donaldson added.
Mr Ian Paisley jnr MLA said he was concerned about republican activity in the area. The incident was a clear indication that IRA arms were still in use rather than having been put "beyond use".