Theresa May faces a Cabinet showdown today after 60 Tory Brexiteers reportedly threatened to abandon her if she backs a customs partnership with the EU.
The Prime Minister's so-called "Brexit war cabinet" is meeting to attempt to reach a deal on whether the UK should leave Europe's customs union or enter a "customs partnership".
But 60 eurosceptic Tory MPs, from the European Research Group (ERG) which is led by Jacob Rees-Mogg, have threatened to withdraw their support over the issue, according to the Telegraph.
In a document sent to the Prime Minister, seen by the BBC, they said a "customs partnership" would make meaningful trade deals "impossible" and render the Department of International Trade "obsolete".
It came as Mrs May was preparing to meet with her Cabinet on Wednesday where ministers are set to discuss different options to replace membership of the customs union.
With customs arrangements emerging as the key stumbling block to a deal on EU withdrawal, the issue has the potential to split the Cabinet, where Brexiteers like Boris Johnson and Liam Fox seeking freedom to strike new trade deals are pitted against others who fear barriers to commerce in Europe.
It is understood that Downing Street has been privately warned that a customs partnership could collapse the Government as committed Brexiteers on the Tory backbenches regard it as unacceptable as it would deliver "Brexit in name only".
Although the European Commission has said it wants a solution for the Irish border by its upcoming summit in June, there is no requirement on Mrs May to come to a final decision at Wednesday's meeting of the Brexit strategy and negotiations sub-committee.
It was widely expected that she may seek to stave off potential resignations by keeping all options open.
Under the customs partnership plan, Britain would collect tariffs on the EU's behalf at ports and airports, passing on a share of the cash to Brussels.
If the UK decided to set different tariffs from its European neighbours, traders would claim refunds from HM Revenue and Customs for goods which stay in Britain.
Europe advisor Oliver Robbins is understood to regard the partnership as a means of avoiding a hard border in Ireland while keeping the UK out of the European customs union.
But Brexit Secretary David Davis has confirmed that Brussels is "pushing back" at the scheme, as well as a second UK proposal for a "streamlined customs arrangement" using new technology to avoid the need for checks at the border.
Reports last month suggested that EU officials told Mr Robbins at a Brussels meeting that both schemes were "unworkable".
Now Mr Davis has told a House of Lords committee: "The Commission did push back on both."
Brussels is concerned both by the prospect of "porosity" on the EU's external border and by the risk of creating a precedent which might be copied elsewhere, he said.
Tory Brexiteers fear the scheme could indefinitely trap the UK within the EU's customs arrangements, as well as being expensive and complicated to operate.
ERG chair Mr Rees-Mogg openly mocked the idea as "completely cretinous, the silliest thing I could possibly think of... a betrayal of good sense".
And former Conservative leader Iain Duncan Smith told the Daily Telegraph that the ERG report had killed the argument for the customs partnership "stone dead".
Former Brexit minister David Jones told BBC2's Newsnight: "Certainly there would be a lot of very disappointed Brexiteers if we were to end up in a customs partnership.
"The Prime Minister's calculations have got to include exactly what reaction there would be from the parliamentary party and the wider Conservative Party if we were to enter into that sort of relationship."
But Conservative former minister Nicky Morgan said there were also "hard conversations to be had" to get pro-European Tory MPs on board with any changes to customs arrangement.
"What we are not going to do is make trade harder for the many businesses in this country, nor make peace in Northern Ireland something that we put at risk," Ms Morgan said.
Failure to come up with a solution could leave the UK forced to fall back on the European Commission's "backstop" option, which would effectively draw a customs border down the Irish Sea.
Mrs May has insisted that no British prime minister could accept such a scenario. And it would infuriate the Democratic Unionist Party, whose MPs prop up the minority Conservative Government in the House of Commons.