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Mahathir said Umno, MCA and Gerakan leaders should also try to heal the rift and help revive the ailing ruling coalition.
"However, I must admit that this will be quite impossible if Abdullah still leads BN and the government," he added in his latest blog posting.
Mahathir also lamented that race relations in Malaysia has now become worse despite some claiming otherwise.
"I may be wrong and certainly the leader of the government will say I am wrong, but what I see today is more extreme racialism raising its ugly head," he said citing the latest controversy involving Umno chieftain Ahmad Ismail.
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Mahathir said he could appreciate the need for the Chinese-based parties to regain the support of the Chinese community by showing their strong stand against Umno.
But the only result of this would be the antagonism of the Malays against the Chinese, he warned.
"If this goes on, if the Gerakan and MCA leaves BN because of what Ahmad Ismail said, then who gains? Obviously the opposition Pakatan Rakyat would gain.
"The choice for Gerakan and MCA is either to join the opposition or to degenerate into insignificant parties which can never aspire to win enough seats to form a government. The end result will be victory for the opposition."
'Remove The Captain'
As for the opposition, Mahathir wondered aloud if parties like PAS, an entirely Malay party with its Islamic state vision and DAP with its predominantly Chinese base and secular politics could form a good government?
"The Pakatan is not a properly constructed coalition like BN. It is just a collection of disparate parties which come together in order to win elections by not contesting against each other."
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"The result will be chaos for this country. There would be racial tension which may turn ugly."
On the BN front, the former premier said the disenchanted Chinese component parties are unwilling to openly name the culprit behind their woes but like the Malays, would condemn the leadership of Abdullah in private.
"But no one would openly say so. Instead as we can see Umno is made the scapegoat but this will not improve race relations or improve the quality of the BN government.
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Mahathir said instead of Deputy Prime Minister Najib Abdul Razak apologising over the Ahmad Ismail debacle, Umno should have disciplined him.
The deputy premier's apology and its rejection by Gerakan simply angered the Malays. At the same time I don't think support for Gerakan and MCA would increase, he added.
Mahathir said the BN leader should have called the parties concerned and persuade them not to use the race card but the leader was too scared to face Ahmad Ismail one-to-one.
"Instead he resorted to the Internal Security Act to prove that he is impartial. Now not only the Malays but the Chinese too will become more angry."
"In my last article I tried to reduce the anti-BN feeling. To me it is still a great coalition, still the best institution in the multi-racial Malaysian politics."
"The problem is incompetent leadership. You don't sink the ship because the captain is not handling it properly. You remove the captain."
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