In 2001, Milinda was appointed as Minister of Economic Reform, Science and Technology, and Deputy Minister of Policy Development and Implementation, whose Minister was the Prime Minister Ranil Wickremesinghe. During his tenure in government Milinda endeavoured to bring about constructive changes at the local, grassroots and national levels. The first priority of the UNF administration was to bring about a ceasefire to restore normalcy to the lives of ordinary citizens who had been living under much suffering and hardship due to the conflict. Under the guidance of then Prime Minister Ranil Wickremesinghe, Milinda played a key role in bringing about a ceasefire and to restart the peace negotiations which had broken down for several years.

Among the early results of the Ceasefire was the reopening of the A9 Highway linking the North and South of the country. Milinda went on to serve as one of the government negotiators during the revived Peace Talks. Summing up his approach to the peace process, he said he entered the process with 'a warm heart, a cool head and a deep breath”. As part of this process, for the first time in the history of the conflict a Peace Secretariat was established to create an institutional memory of the peace process. To ensure that the peace would be viable, he assisted in securing pledges from the International Community to rebuild the country. To help those in the war-affected areas in the Northeast to return to their lands and to rebuild their lives, following the Ceasefire in February 2002 through a foundation he helped set up one of the first local projects involved in humanitarian de-mining. In the area of national security, he played a key role in working out a strategy to transform the security forces so as to enable them to meet the new and complicated challenges of the 21st Century. In this context, he worked closely with the United States and India.

In Parliament Milinda demonstrated his commitment to creating a new political culture in many ways. He presented two motions to help strengthen the democratic process and to build the knowledge base of legislators. The first motion was to televise the proceedings of Parliament and the second was to create a Parliamentary Research Service.

Meanwhile, Milinda did not forget his campaign pledges to strengthen civil society, to keep in touch with his constituents and to maintain transparency. One of his projects, Sahana Sevana, created model grama niladari offices to help strengthen the resources of these local officers who are the first government contact of ordinary citizens. To recognize achievement and to counteract the sycophantic glorification of politicians, when asked to inaugurate an event, he would often arrange for an eminent member of civil society to do the honours in his place. In his attempt to promote equal opportunity, he allocated 1/3 of all seats on the boards of organizations falling under the purview of his ministry to women.

Other projects established during this period were the Viswa Gnana project which entailed the establishment of computer kiosks in temples and public places to promote computer literacy and community cohesion and a project involved in the restoration of derelict parks in lower-income areas so that children could have a safe area to play freely.

Milinda also created and hosted a public discussion show called Face the Nation (Obey Wedikawa) in which he visited different areas of the country to talk to different groups of Sri Lankans facing different sets of difficulties, particularly groups affected by the conflict. Shows featured groups such as civilians from Jaffna, relatives of missing servicemen, members of the security forces stationed in the North, fishermen from Trincomalee, and students from the Southeastern University. To educate the public about the open economy, he presented to Sri Lankan viewers a prize-winning television six-hour documentary series produced in the US. This series entitled 'The Commanding Heights”, gave an overview of the major events in the economic history of the world during the 20th - 21st Century. The series was run first in its original English and later it was subtitled in Sinhala with each weekly episode accompanied by a discussion about the ideas presented in the show. This followed upon his tradition of presenting current affairs and new ideas to the public, which he established with his popular television talk show, In Black and White. This programme which was established in 1999 and ran up until 2003. Guests included both local and international leaders in fields such as politics, economics, literature, journalism and art.

Shortly after the former President Chandrika Bandaranaike Kumaratunge dissolved Parliament in February 2004, he resigned from his Cabinet post. Part of the reason for this was that he wanted to campaign as an ordinary candidate without the advantages of the State machinery.