Theresa May was under fresh pressure from within the Cabinet after Boris Johnson warned of a Brexit "meltdown" and called for "guts" in exit talks.
In unguarded comments at a private dinner, the Foreign Secretary said there was a risk Brexit "will not be the one we want" and would keep the UK "locked in orbit" around the EU.
At the gathering of the Conservative Way Forward, a Thatcherite campaign group, he branded the Treasury the "heart of Remain" and claimed negotiations were approaching a "moment of truth".
In comments captured in a recording obtained by BuzzFeed News, he said the Prime Minister was "going to go into a phase where we are much more combative with Brussels".
He added: "You've got to face the fact there may now be a meltdown. OK? I don't want anybody to panic during the meltdown. No panic. Pro bono publico, no bloody panic. It's going to be alright in the end."
Mr Johnson suggested Chancellor Philip Hammond's department was "basically the heart of Remain" and said the UK could end up "in the customs union and to a large extent still in the single market".
The Cabinet minister was speaking to around 20 people dining in a private room after a reception at the Institute of Directors on Wednesday night.
He said: "Unless you make the change, unless you have the guts to go for the independent policy, you're never going to get the economic benefits of Brexit. You'll never get the political benefits of Brexit."
Mr Johnson said fears about the border on the island of Ireland were out of proportion.
"It's so small and there are so few firms that actually use that border regularly, it's just beyond belief that we're allowing the tail to wag the dog in this way," he added.
"We're allowing the whole of our agenda to be dictated by this folly."
Mr Johnson also suggested Donald Trump would "go in bloody hard" and "might get somewhere" in the exit talks if he was in charge.
His comments are the latest Brexit headache for the Prime Minister, who is in Canada for the G7 summit.