Karren Brady says UK foreign aid cash should be used to fund the 2% NATO defence spending target and the British aim must be to "secure the peace" and protect citizens in conflict zones.
The Conservative peer has hit out at the "unjustifiable" £14 billion spent on "ill-thought-out and poorly executed" UK aid policy.
She also criticised the "arbitrary" target to spend 0.7% of national income each year on aid, particularly given that the UK pays billions of pounds each year servicing the national debt.
Lady Brady said it is "impossible to justify" spending taxpayers' cash on "far-flung conflicts" where it is difficult to identify their impact or relevance to the UK.
The peer suggested infrastructure development and supporting a path to democracy in these countries would be done by others.
Lady Brady's remarks came during the annual Lords debate led by the Archbishop of Canterbury, which this year focused on the role of reconciliation in British foreign, defence and international development policy.
Lady Brady said she could see a role for faith-based organisations during and after conflict, given that the rule of law may have broken down.
She added: "I do not though see a similarly prominent role for the UK Government and its aid budget. This is for two related reasons.
"The first is that it's impossible to justify the use of taxpayers' money on such far-flung conflicts where their impact or relevance to the UK is all but impossible to identify.
"The second is that whenever we take on such broad and ambitious tasks, our track record is poor and we risk doing more harm than good."
She pointed to criticism of the UK's Conflict, Stability and Security Fund, adding: "I won't go into depth on the aid budget more generally - suffice to say that when we are paying £50 billion a year in interest servicing our national debt, spending £14 billion a year on ill-thought-out and poorly executed aid policy in the name of an arbitrary spending target I find unjustifiable."
Lady Brady outlined how the UK should seek to "secure the peace" in conflict zones, adding: "It's not about building infrastructure or supporting a path to democracy - although this needs to happen - it is simply about ending the violence once and for all."
She said this was better done through defence work than international development, noting: "Take Iraq, it was exactly the failure to secure the peace that meant that it couldn't flourish as a country.
"No amount of aid money can change the reality when bombs targeting civilians are part of every day life. Prosperity will never come."
Lady Brady said this was about protecting civilians so they could resume their lives, arguing the rule of law and associated institutions would begin to be established.
She went on: "So where are the key opportunities to bring about peace?
"The UK Government should therefore act, of course, but I think it's our armed forces we should look at, not the aid budget.
"Once peace is secure, multilateral development banks, infrastructure investors, NGOs, experts in building institutions can manage and eventually create the conditions for private sector investors."
Lady Brady said the question was not about re-purposing defence spending to hit the 0.7% aid target, adding: "The 0.7% aid budget should be re-purposed to help us deliver our 2% defence spending commitment under NATO.
"It may not burnish our so-called soft power credentials as much but it would be much more effective in the long run - for us, for the conflict zones in question and surely that is more important."
Defence minister Earl Howe, wrapping up the debate on behalf of the Government, challenged Lady Brady's view, saying:
"Our aid budget is vital to ensure we tackle the great global challenges from the root causes of mass migration, disease to the threat of terrorism and global climate change, all of which directly threaten the UK's national interests."