Mandelson, who has been brought down as a government minister twice by scandals, is reported to have been in talks for weeks prior to Campbell going about how to revamp Labour's communications.
According to the Daily Telegraph, as well as Mandelson former BBC director general John Birt has been involved, as has the Prime Minister's chief of staff Jonathan Powell.
Number 10 is due to give full details of the communications overhaul this week. It is understood that the review will draw heavily on the government communications review being conducted by Guardian Media Group chief executive Bob Phillis.
Reports suggest it will lead to a new clear separation of power between special advisers and civil servants. Unlike Campbell, his successor Hill will not have power over civil servants. Instead, a new civil servant, a permanent undersecretary, is likely to be appointed.
Hill was named to succeed Number 10 spin doctor Alastair Campbell on Friday, when it was announced that the PM's long-term communications chief is to leave his job in September.
It was speculated earlier this month that Hill would be the man to succeed Campbell, whose departure coincides with Hutton Inquiry into the death of Ministry of Defence scientist David Kelly.
According to a report in the Sunday Times, Hill has has options on 95,000 shares in his old firm Lord Bell's Chime Communications, which can not be cashed for several years.
It means he will have a financial interest in the company and its blue-chip clients, which include GM food giant Monsanto, Tesco and Corus, putting him in an awkward position as the government's most important communications person.
According to reports, the government might now have to offer Hill what is known as a "golden hello", compensating him so that he can hand the share options back to Chime.
Hill is a former Labour Party chief press officer who quit the party to join the private sector immediately after Labour's stunning 1997 election victory. He joined Keith McDowell Associates, a small consultancy bought three years ago by Lord Bell, and now runs the political PR arm of Chime's Good Relations agency.
Although Hill left Labour in 1997, his links with the party have remained very close and he was back at Labour's Millbank headquarters as a senior press spokesman on loan from Bell Pottinger for the 2001 election campaign. He is married to Number 10 special adviser Hilary Coffman.
The Sunday Times said the exact value of Hill's options is not known but it is thought that the shares are worth tens of thousands of pounds. Chime's shares are currently trading at 174.5p.
The paper said that Hill has also received assurances that he can return to Chime once he leaves Downing Street.
The paper quoted a Downing Street spokesman saying: "David Hill will be employed in accordance with the rigorous rules governing the employment of special advisers, including those in relation to any potential conflict of interests."
Despite the row, under government rules Hill does not officially need to surrender the share options, he only needs to declare them. However, with the Prime Minister's office taking so much flak, the last thing it needs is a scandal that involves its new communications chief.
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