Huw Irranca-Davies, who has announced he is leaving the shadow frontbench, told Radio Wales his party needed to "consistently re-invigorate" itself.
He said the party was facing a "huge challenge" at next year's assembly elections, and the Welsh government needed to deliver on its ambitions.
Mr Irranca-Davies quit the Labour frontbench on Wednesday.
The former Wales Office and DEFRA minister has said he intends to play a constructive role in the rebuilding of the Labour party in Wales and the UK from the backbenches.
Speaking on Sunday Supplement, he said: "We only get to be the natural party of Wales if we consistently re-invigorate ourselves."
He said the party needed to consistently argue the case that it is "good for Wales to have a Labour Party that is pro-business, pro-every part of Wales".
Welsh Labour, he said, needed to fight "not only for people who are vulnerable, not only for people on low pay, but fight for entrepreneurs, fight for people who want to do better for themselves".
Mr Irranca-Davies said he agreed with Jon Cruddas, who helped write Labour's election manifesto, that the party's election performance was arguably the greatest disaster for Labour since 1918.
He said: "Even if you look in the South Wales valleys seats... in a swathe of those seats UKIP came a strong second, over 15 or 20% of the vote, so is it a massive crisis for Labour? Yes, I think it is.
"But Jon is also right when he says, not only in terms of the leadership but, what we need to do as a party, as a body, as a movement, is to actually own this and say it is massive, now how do we front this up?"
He admitted the party was facing a challenge in the 2016 assembly elections.
"I don't think you can ever have a party in government that can simply say 'we have done everything correctly'," he said.
"And where there are deficiencies then you have to front up and say 'we have not done the turnaround that we wanted to see'.
"We do need to be not simply more ambitious, but state the outcomes we want to see in terms of education and health, and in terms of the economy, and be hugely ambitious for that. And then deliver it."
Welsh Labour needs to "shrug off" the idea it is still the natural party of Wales, their MP for Ogmore has said.