The two yards yesterday announced a joint bid for re-fit work that could save up to 250 of the 850 redundancies announced at Devonport earlier this month.
But winning the re-fit work, for the auxiliary ship Sir Bedivere, would almost certainly seal the fate of the Swan Hunter shipyard on Tyneside, which has also tendered for the contract and needs the work to survive.
Most large defence shipbuilders have registered an interest with the Government in advance of Devonport's planned privatisation.
VSEL wants to expand outside its core submarine business as the Trident nuclear submarine programme is run down.
Details of Devonport's privatisation is expected to be announced soon. Its sister yard, Rosyth in Scotland, could face closure under defence cutbacks.
Noel Davies, VSEL's chief executive, said the talks were exploratory and at a very early stage. The Devonport yard is capable of doing more general Royal Navy work than VSEL's site.
A Devonport spokesman said the decision to bid jointly with VSEL to re-fit the Sir Bedivere was coincidental to VSEL's talks with the Government.
The VSEL yard, at Barrow-in- Furness, would 'stretch' the Sir Bedivere by about 10 metres, and the ship would then go to Devonport for the rest of the re-fitting. The contract would be worth about pounds 40m.
As well as saving an estimated 250 jobs at Devonport, the Sir Bedivere contract would provide 200 jobs at VSEL.
But Swan Hunter desperately needs the business. Its sale out of receivership to the French group Constructions Mecaniques de Normandie, is conditional on winning the contract.
If the business goes elsewhere the 900 people still employed at the yard will be made redundant in November when existing work is completed.
Malcolm Rifkind, the Secretary of State for Defence, is due to announce the winner of the contract in about two weeks.
VSEL is also joining forces with Kvaerner, the Norwegian group that owns the Govan yard on Clydeside, to seek contracts.Reuse content