Lawmakers on a parliamentary committee have said that Prime Minister Theresa May, who could trigger Article 50 as early as Tuesday and allow for the start of formal negotiations between Downing Street and Brussels, should be prepared for the "real prospect" that the two-year negotiation cycle may end in deadlock.
May has stated that she would walk away from negotiations without an agreement with the EU rather than sign up to a "bad deal."
But the perceived lack of planning for such a scenario has irked her fellow politicians, who have warned that no agreement would be "very destructive" for both the UK and Europe.
"The possibility of 'no deal' is real enough to require the government to plan how to deal with it," said Crispin Blunt, head of the House of Commons Foreign Affairs Committee, which published the report.
"But there is no evidence to indicate that this (scenario) is receiving the consideration it deserves or that serious contingency planning is under way. The government has repeatedly said that it will walk away from a 'bad' final deal. That makes preparing for 'no deal' all the more essential," he added.
"Last year, the committee described the government's failure to plan for a leave vote as an act of gross negligence. This government must not make a comparable mistake."
The report also warns that Britain faces huge pitfalls in attempting to secure an agreement with the 27 member states of the EU and could eventually be left to trade according to World Trade Organization rules, which could enhance risk of economic harm.
"It is clear from our evidence that a complete breakdown in negotiations represents a very destructive outcome, leading to mutually assured damage to the EU and the UK," Blunt added.
"Both sides would suffer economic losses and harm to their international reputations. Individuals and businesses in both the UK and EU could be subject to considerable uncertainty and legal confusion. It is a key national and European Union interest that such a situation is avoided."
British lawmakers in the House of Commons will debate the EU withdrawal bill for the third time Monday, with the government hoping to bring a swift end to the saga.
The House of Lords has voted for two amendments to the bill in the past few weeks:
one which gives European citizens a guaranteed right to remain in the UK, and another which gives Parliament a "meaningful" vote on the terms of the exit deal.
Brexit Secretary David Davis has insisted that members of Parliament should reject the amendments, although he did say that lawmakers would be given a vote on the final draft agreement with the EU.
"However they voted in the referendum, the majority of people now want the prime minister to be able to get on with the job," he wrote in the Sunday Telegraph.
"MPs passed straightforward legislation allowing the government to move ahead with no strings attached."
The bill will first be debated in the House of Commons before passing back to the House of Lords, where either the amendments will be reimposed or allowed to pass without significant objection.
Speaking later to the BBC, Davis said he expected Britain to leave the EU in March 2019 but added that there could be some transitional agreements.
He also rejected accusations that the government was not prepared for a scenario in which it failed to gain an agreement with the EU.
"The aim is to get a good outcome and I'm confident I'll get a good outcome," he told the Andrew Marr show.
"One of the reasons we don't talk about the contingency plan too much is we don't want people to think this is what we are trying to do."
'Not as apocalyptic'?
Foreign Secretary Boris Johnson added that the consequences of failing to reach a deal would not be "as apocalyptic as some people like to pretend."
He told ITV that he remained positive and said EU member states were keen to avoid falling out with the UK.
But International Trade Secretary Liam Fox was less bullish, claiming any failure to secure a deal would be "bad" for Britain.
"It's not just bad for the UK, it's bad for Europe as a whole," he told Sky News.
On potential trade barriers, he added: "That's not in anybody's interest, which is why I understand we need to plan for no deal, but I think it's unlikely to happen because economic reality will get in the way."