Speaking at the high-powered Munich Security Conference, Guttenberg also slammed Iran for its cat-and-mouse tactics over the question of its nuclear ambitions.
Of NATO, he demanded a change to the long-held principle of unanimity, under which all 28 members must usually consent to any action taken. Guttenberg branded it a ''cultivated absurdity.''
NATO chief Anders Fogh Rasmussen also spoke out in favour of a major shift for the alliance, saying it should deepen its ties with China and India in order to boost struggling missions such as Afghanistan.
"This is a key lesson we are learning in Afghanistan today,” Rasmussen said. “We need an entirely new compact between all the actors on the security stage. India has a stake in Afghan stability. China too."
NATO and its partners have more than 110,000 troops in Afghanistan, but they have been unable to put down the insurgency more than eight years after a US-led coalition ousted the Taliban from power.
"We cannot meet today's security requirements effectively without engaging much more actively and systematically with other important players on the international scene," Rasmussen said.
"The alliance should become the hub of a network of security partnerships and a centre for consultation on international security issues – even issues on which the alliance might never take action," he said.
But the conference, which has brought together some 300 top military, diplomatic and political figures, has been dominated by the cut-and-parry surrounding Iran's nuclear ambitions.
Iran’s Foreign Minister Manouchehr Mottaki used the conference to push his country’s willingness to send its low-grade uranium abroad for processing – a move it hopes will ease fears it is trying to build a nuclear bomb.
But Iranian President Mahmoud Ahmadinejad subsequently asked his nuclear experts on Sunday to begin enriching their own uranium, drawing a furious reaction from Guttenberg.
It showed the outstretched hand of the West had been “not only not accepted, but slapped away,” he said.
Guttenberg said the “thumbscrew of sanctions” may now need to be tightened and urged China and Russia not to oppose such sanctions in the UN security council.
The chairman of the conference, former diplomat Wolfgang Ischinger, also expressed dismay, saying: “I interpret this as a threat.”
Late last night, the hawkish US Senator Joe Lieberman warned in Munich that his country had to keep open the option of attacking Iran.
Meanwhile, Afghan leader Hamid Karzai told the gathering he was mulling a return to a conscript army, as he seeks to build his insurgency-hit nation's security forces over the next five years.
"This will be philosophically one of our pursuits as we move ahead," Karzai said.
His remarks followed a plea by Guttenberg that Karzai take personal responsibility for ensuring his country could take care of its own security, in order that foreign troops could begin pulling out.
Guttenberg admitted that mistakes with the NATO mission had been made in the past but that it was on the “right path” now that troop numbers and priorities had been finalised.
Under a recent switch of strategy, almost 40,000 extra troops are streaming into the conflict-torn country, aiming to protect civilians and win their support, rather than hunt down fighters, many re-supplied from Pakistan.
Following last month's conference in London, the strategy also involves a "surge" of civilian experts, backed by redoubled efforts from major donors, financial institutions and bodies like the United Nations and European Union.
Rasmussen underlined that NATO did not seek to replace the work of the United Nations – a stance backed by Guttenberg.
"We don't want to enter into any competition with the United Nations," Guttenberg said. "We don't want to turn NATO into a global security agency."