Britain will pay a "severe price" if it votes to leave the European Union, Sir John Major has warned.
Exit could cost billions, would leave the UK isolated internationally and yet still required to implement EU regulations it had no part in framing, the former prime minister said.
Sir John - whose premiership was scarred by long-running battles with Tory Euro-sceptics - backed David Cameron's strategy of renegotiating Britain's membership before staging an in/out referendum as the best way of finally resolving the Europe issue.
The Government needs to be realistic about what it can achieve in the negotiations, he said in a speech at the annual dinner of the Institute of Directors in London.
Unlike other recent forays into the the political arena, such as his call for a windfall tax on the profits of energy companies, his latest intervention is broadly helpful to the Conservative leadership which supports continued EU membership.
It would be a "truly dreadful outcome" for both the UK and the EU if the result of the referendum - promised by Mr Cameron if the Tories win the next general election in 2015 - is that Britain decides to leave, Sir John said.
"In a world of seven billion people, our island would be moving further apart from our closest and largest trading partners, at the very time when they, themselves, are drawing closer together. This makes no sense at all."
Britain would have to negotiate its exit which could cost billions, and then could find itself still having to pay for access to the single market. Norway, as a non member, pays 80% per capita of what the UK pays as a full member, he said.
It would still be obliged to implement EU regulations but would be unable to defend the City, or any other sector, from harmful new legislation, while inward investment to the UK would fall away, according to Sir John.
At the same time the EU would suffer from the loss of one of its biggest economies, the "long and historic reach" of Britain's diplomacy and its most significant military power.
"The EU would be diminished. The UK would be isolated. I am no starry-eyed Europhile but it would be a lose/lose scenario: a truly dreadful outcome for everyone," he said.
Mr Cameron is right to seek finally to settle the long-running debate over Britain's membership through a referendum, Sir John said.
"The European Union continues to divide public opinion in the UK. Even where it appeals to our head, it consistently fails to appeal to our heart. We need to sort this out."
While Mr Cameron's position is "far stronger than many believe", Sir John made clear that the Prime Minister would need to play his hand carefully when it came to renegotiating Britain's membership terms.
"We need to negotiate with the grain of evolving views across the EU. We need to hoover up the allies that already exist on many issues. We need to be smart enough not to ask for the impossible."
Sir John also used his speech to warn against Scottish independence and pour scorn on the SNP's plans to break away from the UK while still retaining the pound with the Bank of England as the lender of last resort.
"A currency union, which the SNP assume is negotiable, would require the UK to underwrite Scottish debts. That cannot, will not, happen if Scotland leaves the Union. There can be no halfway house, no quasi-independence underpinned by UK institutions," he said.