Conservative former chancellor Lord Lawson has blasted the Government's expenditure of more than £9 million of taxpayers' cash on pro-EU leaflets as a petition calling for the plan to be scrapped passed 200,000 signatures.
The Tory peer, a key figure in the Vote Leave campaign, argued it is "outrageous" that "pretty worthless propaganda" is being sent out "with the civil service behind it".
The move to send one to every household in the country setting out the case for voting to stay in the EU in June's referendum has triggered a major row between Remain and Leave supporters.
The petition, submitted by Get Britain Out director Jayne Adye, has more than double the number of signatures required to be eligible for a debate in Parliament, meaning ministers could be forced to defend the plan.
Lord Lawson told BBC One's Andrew Marr Show: "I think a lot of people who haven't made up their mind particularly feel that it's outrageous that this propaganda leaflet should be put through - and it is pure propaganda, pretty worthless propaganda - put out in the Government's name, with the civil service behind it at the taxpayer's expense.
"I think many people feel that that is a scandal."
An amendment to the Finance Bill, which could potentially wreck the Government's Budget, is due to be tabled by veteran Tory Eurosceptic Sir Bill Cash on the issue when it comes before the Commons on Monday.
The Tory peer accused Remain campaigners of trying to "scare the pants off everybody" about leaving the EU.
He said: "In terms of the arguments, I think the pro-Leave campaign is winning them all. In terms of votes, you have to see how strong this totally unfounded fear campaign - there's no campaign to love the EU, that is conspicuous by its absence, so all they are trying to do is scare the pants off everybody about leaving, but it is crazy.
"Most of the countries in the world are outside the EU and they are doing very nicely thank you."
Asked if Britain would be in a single market after leaving the EU as an institution, Lord Lawson said it was "not important".
He said it is "striking" that trade from outside the EU into the EU had risen much faster than trade within the EU, adding: "You don't need to be within the single market to trade, it's not an issue."
Asked about what would happen to the frontier between Northern Ireland and Ireland in the event of a UK exit from the EU, Lord Lawson said there would be "border controls, but not a prevention of genuine Irish from coming in across the border".
Will Straw, executive director of Britain Stronger In Europe, said: "This is yet another admission from the Leave campaign that exiting the EU will have a detrimental impact on the UK.
"By outlining that Northern Ireland would face the introduction of border controls if we left the EU, Nigel Lawson is admitting that the UK's relationship with Ireland would fundamentally change. He also directly contradicted claims from (Secretary of State for Northern Ireland) Theresa Villiers that this would not happen.
"This comes on the back of mounting evidence that the UK's economy and security would be at risk if we left Europe. The Leave campaign has repeatedly been unable to answer simple questions about Britain's future. The only conclusion is that the UK is stronger, safer and better off in Europe than we would be on our own."
Cabinet minister Amber Rudd defended the leaflets and urged Tories to "reconsider" the Finance Bill amendment.
She told BBC One's Andrew Marr Show: "The fact is, it has precedent - this is what the government did in 1975 and, as the Prime Minister has often said, this Government is not neutral on this matter.
"We believe that we are stronger and safer in a reformed EU, so it's right the Government makes the case."
She backed Mr Cameron to "unite the party" amid speculation the Prime Minister is planning a post-referendum "reconciliation reshuffle" which could see prominent Brexiteers including Boris Johnson handed senior jobs.
"I think the Prime Minister is unlikely to ask my advice on that and I rely on his good judgment to put together a Cabinet that will unite the party and deliver on our core manifesto commitment to deliver a strong economy," she said.
The Sunday Times reported that Michael Gove was also in line for a bigger role as part of the shake-up, which could involve some of the most senior jobs in government.