George Osborne has warned that Greek exit from the euro would be "traumatic", as he moved to try and reassure British citizens in Greece about the security of their savings.
Athens is teetering on the brink of defaulting on its the current debt and exit from the euro. It is required to pay back €1.6bn to the International Monetary Fund (IMF) by the end of Tuesday.
However prime minister Alexis Tsipras has said the terms of a bailout offered by the IMF, European Union and the European Central Bank are unacceptable.
The deal on the table would require Athens to slash public spending further in exchange for the money. The Greek government surprised the EU by calling a referendum on July 5 in which the public will be asked whether to approve or reject the bailout offer.
Tsipras is urging Greeks to reject the deal. But European leaders made clear today they saw the referendum as one of whether Greece would remain in the euro - rather than whether or not it would accept the bailout.
Greek banks and the Athens stock market were ordered to remain closed, while holiday-makers and savers found cashpoint machines empty as they flocked to withdraw money.
Greece Bailout In Pictures
Osborne told the Commons today there is "considerable uncertainty about what happens next" in the eurozone. "We hope for the best but we prepare for the worst," he said. "An exit will be traumatic."
The chancellor said the British government was working on the assumption that the referendum "will effectively be a choice for the Greek people about whether their country leaves the euro".
And Osborne said Britain was "prepared" for Greece to leave the eurozone. He said Britons drawing their pensions from a Greek bank account will be helped to switch to a non-Greek account if they wished.
Jean-Claude Juncker, the head of the European Commission, said today he felt "betrayed" by the "egotism" shown by Greece during debt negotiations.
"The whole planet would consider a Greek 'No' to the question posed as meaning that Greece wants to distance itself from the eurozone and from Europe," Juncker said.
This morning David Cameron said the public poll on July 5 was essentially an "in/out" vote on whether the deeply-indebted country should leave the single European currency.
Cameron chaired a meeting earlier today to put "final touches" to UK government plans to protect British interests in the event of default.
The Foreign Office and travel agents advised UK nationals heading for Greece to take enough euros in cash to cover spending needs and possible emergencies, amid concerns that they may face problems using credit cards or withdrawing funds from cash machines.