German Chancellor Angela Merkel is reported to have made clear she will withdraw her support for Britain's continued EU membership if David Cameron insists on pushing through curbs on immigration.
News weekly Der Spiegel quoted government sources as saying Ms Merkel fears the UK is approaching "the point of no return" and is becoming worried for the first time that a British exit is a real possibility.
Ms Merkel told the Prime Minister on the sidelines of an EU summit last month that his efforts to limit immigration undermined core principles of bloc, the magazine reports.
"Should Cameron persist (in this plan), Chancellor Angela Merkel would abandon her efforts to keep Britain in the EU," the sources were quoted as telling the magazine.
"With that a point of no return would be reached," they said, adding: "That would be it then."
There was no suggestion in the Der Spiegel report that Germany would itself push Britain towards the exit.
Ms Merkel has said she strongly backs continued British membership, but not at any price.
No member state has ever left the 28-nation bloc, although there is a legal mechanism for a country to do so if it chooses. Other member states cannot force a country out.
The Prime Minister wants to renegotiate the terms of Britain's membership ahead of the Conservatives' promised referendum by the end of 2017.
He is under pressure to tighten the UK's immigration controls to counter the growing popularity of UKIP.
Mr Cameron will be aware of the need to calm Tory jitters ahead of this month's crunch by-election in Rochester and Strood, where the party is desperate to prevent a second seat falling to UKIP.
The Sunday Times reported he was drawing up plans to ban migrants who do not have a jobs and deport those who are unable to support themselves after three months in the country.
A Downing Street spokesman said: "The Prime Minister will do what is right for Britain, as he has repeatedly made clear."
However, a German government spokesman said the general principle of freedom of movement in the EU is not negotiable, but added there is a strong interest in the two countries discussing how tackle abuse of that freedom.
Mr Cameron is unlikely to have welcomed comments at the weekend by arch pro-European former cabinet minister Ken Clarke, who dismissed UKIP as an "extreme right-wing protest party" and said free movement of labour is "absolutely essential" to the functioning of the single market.
He said: "If you're going to have a sensible single market, if we want to compete with the Americans and the Chinese and so on and modern world, we need the free movement of labour."
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