Lord Lawson has dismissed as "poppycock" Nick Clegg's suggestion that three million British jobs would be put at risk if the UK left the European Union.
And he said David Cameron's plan to negotiate a looser relationship with the EU as "virtually impossible" - once again exposing the split within the Tory party over the issue of Europe.
The prime minister had hoped to win over eurosceptic MPs as well as stop the haemorrhaging of votes to Ukip by pledging to hold an in/out referendum after securing a new deal with Brussels.
However Lord Lawson told BBC Radio 4's World at One programme this afternoon that he did not believe Cameron would be able to persuade other EU states or the Brussels bureaucracy to give ground.
"I have a lot of friends in the the 'eureaucracy' and they all assure me he will not be given any significant changes at all," he said. "The nature of the EU is that there is only one way of travel, which is to more and more powers to the centre."
Downing Street said the prime minister remained "confident" that his strategy "will deliver results".
And Lib Dem Deputy prime minister Nick Clegg has warned leaving the EU would make Britain "less safe". He told BBC Radio 4's Today programme it would make the country "less prosperous" and would jeopardise "up to 3 million jobs".
But Lord Lawson hit back: "That's poppycock, I don't think Nick Clegg, who is a charming young man, has ever purported to know anything about economics."
His intervention is sure to further embolden eurosceptic MPs demanding a tougher line to halt the rise of Nigel Farage's rampant anti-EU Ukip in the wake of last week's local elections.
Farage has said Lord Lawson's comments "legitimises the Ukip position and exposes serious divisions in the Tory Party".
Writing in the Daily Telegraph today, Tory MP Brian Binley said Cameron's current course "can only yield further humiliation and defeat" and urged him to woo back Ukip voters by including an EU referendum Bill in tomorrow's Queen's Speech.
The tension between London and Europe was also made clear by European Commission president José Manuel Barroso who said the EU needed further political integration - not less.
"Europe's economic interdependence - so strikingly highlighted by the financial crisis - calls for increased political integration," he said in a speech on Tuesday.
"We will not get away with half-hearted solutions any more, and half-integrated institutions will no longer do. We will not regain the trust of investors if we allow the momentum for reform to slip once again. We will not serve our citizens unless we do what we have to do - all of it – and do it well."