Chief EU negotiator Michel Barnier warned that both sides must be prepared for a disastrous no-deal Brexit with severe economic consequences.
"Brexit has no added value. None," he told business leaders at a speech in the EU parliament in Brussels.
"It's a negative negotiation. It's a lose-lose game and the result will be important, not just for future relations with the United Kingdom, but for the future of Europe."
Britain's Prime Minister Theresa May is due in Brussels next week for a pre-planned summit, and has been invited to address fellow EU leaders on the eve of talks on her Brexit plans.
If she can't convince them that she has enough room to manoeuvre to deliver a Brexit deal they feel respects the integrity of the EU single market, negotiations will fall into crisis.
But Barnier's speech dramatically illustrated the size of the challenge by underlining that the EU will insist administrative and customs controls be installed between Northern Ireland and the British mainland.
"Both the EU and the UK exclude having a physical border on the island of Ireland, therefore what will arrive into Northern Ireland will also be arriving in our single market," Barnier said.
"There will be administrative procedures that do not exist today for goods travelling to Northern Ireland from the rest of the UK," he warned.
However May insists she will not agree to any encroachment on British sovereignty, her Northern Irish allies in parliament have rejected such procedures, and rivals within her own party may not back her.
The speech was met with a furious response from Boris Johnson, the former British foreign secretary widely seen as angling for May's job as leader of the Conservative Party.
"This is an important moment. Clearly Number 10 are negotiating a 'backstop' that makes the UK a permanent EU colony," he tweeted, warning that Brussels would control British trade policy indefinitely.
Barnier said the measures would only be a stop-gap while a new trading relationship is agreed with Britain, and would be minimised if London agrees to join a full customs union under EU rules.
But in the meantime, under the EU vision of a Brexit deal, companies on the British mainland shipping goods to Northern Ireland will have to fill out "customs declarations online and in advance".
"The only visible systematic checks between Northern Ireland and the rest of the UK would involve scanning the bar codes on lorries or containers, which could be done on ferries or in transit ports," he said.
Meanwhile, existing health checks on farm animals arriving in Northern Irish port would remain in place, but would have to be stepped up to cover 100 percent of shipments rather than the current 10 percent.
DUP threatens budget vote
May is under intense pressure to agree an exit deal before March 29 next year, when Britain leaves the EU with or without a negotiated divorce or a plan for future ties.
But the Northern Ireland's Democratic Unionist Party (DUP), upon which May depends for her majority, threatened to vote down the national budget later this month if she gives away too much, a party source told AFP.
In response, May's spokesman denied a budget vote is a confidence vote that could bring down her government.
Downing Street, meanwhile, confirmed that May's ministers would discuss the Brexit negotiations at their regular cabinet meeting next Tuesday, the day before she heads to Brussels.
A group of senior ministers had already been briefed on the situation earlier this week, with another briefing due on Thursday, a government source said.
jpegMpeg4-1280x720Ambassadors from the 27 other EU members are due to meet in Luxembourg on Friday and discuss the Brexit talks with Barnier by videolink.
And previously optimistic diplomatic sources in Brussels are now concerned about the talks.