The proposal was dismissed as "mad" by one minister and "a joke" by another, who accused Lord Neill of displaying his own Euro-sceptic beliefs by trying to scupper Tony Blair's attempts to get Britain to join.
The extraordinary counter-attack came as ministers poured scorn on Tuesday's recommendation from Lord Neill's Committee on Standards in Public Life for the Government to avoid taking sides in future referendums.
One government source said Lord Neill was a "well-known Euro-sceptic" and recalled his previous criticisms of the European Court of Justice. In 1994, he accused the court of "violating the Treaty of Rome" by making up the law to suit its own federalist philosophy and urged EU governments to tackle the "creeping extension" of the court's powers.
Sources on committee dismissed the criticism of Lord Neill as "nonsense" last night. "The proposal on referendums was agreed unanimously by the committee and his personal views were never an issue," said one.
Ministers fear Lord Neill's proposal would blow off course their plans to call a referendum on Britain joining the euro shortly after the next general election.
"The key to winning is that we have Tony Blair and the Government out in front, leading public opinion," said one pro-European minister. "The idea that the Government could remain neutral is mad. Of course we must have a view; otherwise, there would be no point in calling a referendum."
Privately, Labour sources admitted Lord Neill's proposal would boost the Tories' chances of defeating a government move to take Britain into the single currency.
Labour's latest private polling suggests the public opposes British membership by about 55 per cent to 45 per cent. It is understood that Mr Blair wants the cushion of a comfortable poll lead before he calls a referendum on the issue.
Although ministers are likely to reject Lord Neill's proposal, they know that such a move would provoke controversy. William Hague, the Tory leader, yesterday stepped up the pressure on the Government to implement the Neill report in full.
Welcoming Lord Neill's call for future referendums to be conducted in an even-handed way, Mr Hague said the Tories would introduce legislation proposing this if the Government failed to act. He urged Mr Blair to go further by imposing a spending limit on referendum campaigns, like the one which would apply in future general elections, and said the new Electoral Commission to be set up should study the wording of the questions, the timing of the vote and whether thresholds should be introduced to give the verdict legitimacy.
In a letter to the Prime Minister, Mr Hague asked him to confirm he would not "cherry pick" the report by implementing only the parts which suited Labour.