The Scottish Secretary also criticised the SNP for their “doom-mongering” over the vote to leave the European Union, as he reiterated his belief in a “team UK” approach.
He suggested the gains of the Tories at May’s Scottish Parliament elections show the SNP are wrong to believe they have a “divine right” to hold power.
Speaking at the Conservative Party conference in Birmingham, Mr Mundell said: “(The SNP) has abandoned the day job and Scotland is paying the price.
“They spend their time doom-mongering about Brexit and using it as an excuse to threaten a second independence referendum.
“That’s not what the people of Scotland want. It’s a sword of Damocles - the single biggest threat to Scotland’s economy.”
To applause, he added: “The SNP need to stop pursuing their own ideological agenda and start governing.
“They’ve come to think they have a divine right to hold power and not to be held to account.
“We know they don’t, and now we have Ruth Davidson and our fantastic team of 30 MSPs to prove that.”
Mr Mundell also claimed Labour under Jeremy Corbyn’s leadership can “no longer be trusted with the union”.
On Brexit, Mr Mundell insisted the nations of the UK will negotiate, leave and “face the future” together.
He said: “That’s what I call a team UK approach because the UK is Scotland’s vital union.”
Labour MP Ian Murray, a former shadow Scottish secretary, claimed Mr Mundell had shown “extraordinary cheek” in his speech.
He said: “The Tories have done everything they can to undermine the union since the 2014 independence referendum.
“They have pushed through English Votes for English Laws (Evel) - a constitutional wrecking ball that has done nothing but fan the flames of nationalism.
“The Tories then ran a general election campaign that sought to divide the Scots and the English, and have now caused constitutional chaos by completely failing to plan for Brexit.”
He said of Scottish Tory leader Ms Davidson and Mr Mundell: “They should apologise for threatening the union by trying to fix their party.”
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