George Osborne has played down the possibility of the British economy bouncing back within two years were the euro to collapse.
The Chancellor warned that the damage to the UK of the European single currency breaking up would be long-term.
Research suggested there would be a "very significant drop" in British GDP, he said.
The Office for Budget Responsibility cautioned last week that the eurozone debt crisis could yet tip the UK back into recession.
Speaking to the House of Lords Economic Affairs Committee, Mr Osborne cautioned against assumptions that the impact on the UK of the break-up of the euro would only be felt for one or two years.
"The collapse of the euro, the disintegration of the euro, would do enormous damage to the British economy," he told peers. "It would do huge damage to the British economy, and I think those who say we'd have a year or two of hardship and then bounce back out of it, may be somewhat optimistic."
The Chancellor said no amount of contingency planning by the Treasury would prevent "huge damage" from any "disorderly" collapse of the euro.
"I'm confident we have got the right plans in place," he said. "I would give fair warning that however much contingency planning you do, a disorderly collapse of the euro would do huge damage to the UK, no matter how much planning you do to make matters less worse."
Mr Osborne backed the idea of greater fiscal consolidation in the eurozone - on the agenda at the Brussels summit - but acknowledged there was a "risk of caucusing" by the single currency members as a result.
That was why Prime Minister David Cameron was setting out to ensure "safeguards" for Britain and the 27-member European Union as a whole. He stressed that the UK had a veto over the introduction of an EU-wide financial transaction tax, which he said could drive business away from the City of London.