Malaysia's large ethnic Chinese minority and most urban voters largely rejected the UMNO-dominated Barisan Nasional (BN) coalition at the election and Najib has since reversed both policies under pressure from traditionalists.
Despite that, he has not appeased all of his conservative rivals, signalling he will remain under pressure to rein in any reformist instincts. On Friday, Mahathir, 88, launched an outspoken attacks on what he called Najib's "bad performance".
Among other barbs, Mahathir said maintaining the status quo in the UMNO hierarchy would hasten the party's demise after 56 years in power. He also blamed Najib for adding to Malaysia's debt burden with pre-election handouts, and criticised his economic development programmes for lacking credibility.
"The party finds it unable to reject him simply because there are really no other candidates ... the result is they continue to support him despite his poor performance," Mahathir told Reuters in an exclusive interview.
Najib will present his government's budget for 2014 on Friday, under pressure from ratings agencies and investors to rein in Malaysia's high fiscal deficit and debt.
(Read more: Weak Malaysia growth saps post-election euphoria)
Tilting back to reform?
Mahathir, who argues that UMNO has become too insular and needs to promote new talent, also accused Najib's government of pandering to the opposition with liberal social reforms before the election and not making good on his latest pledges.
"Most people don't think he is doing enough. A lot of people comment when he announces things, it is nothing new," said Mahathir, whose often authoritarian rule spanned 1981 to 2003.
May's election was the second straight poll in which the BN coalition saw its parliamentary majority shrink and the first in which it lost the popular vote to the opposition, led by former deputy prime minister Anwar Ibrahim. The result exacerbated racial tensions in the Southeast Asian country as UMNO-backed media blamed "ungrateful" Chinese voters for the setback.
Saturday's election of the three incumbent vice presidents, all of them older than 50, will intensify criticism that UMNO is out of touch with young and urban voters. Najib had tried to broaden the BN's appeal to different races, handing out cash payments to low-income Malaysians among other policies.
In September he reversed course by announcing a raft of new measures to benefit ethnic Malays, bolstering a decades-old affirmative action policy, in a move seen as crucial to ward off any challenge for his UMNO presidency. Last month, his government pushed through a bill that brings back detention without trial, over strong criticism by civil society groups.
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Najib likely isn't "in the pocket" of conservatives and could now tilt back to a more liberal, reformist agenda having balanced the different wings of the party, said Shaun Levine, a senior Washington-based analyst with Eurasia Group.
"He has to appease the conservative base but he must also ensure that foreign investors in particular are certain that Malaysia is not going over the edge economically," Levine said.
The UMNO internal elections were the first under a new system introduced by Najib - who has popular grassroots support - that broadened the voting base in a bid to make the process more democratic and less beholden to powerful party "warlords".