Ian Taylor, MP for Esher and Walton and a leading member of Michael Heseltine's Conservative Mainstream group, said that Mr Sykes' multi-million pound campaign was to be avoided.
Mr Taylor made his remarks as former MP Tony Marlow confirmed that independent anti-federalists were to stand against pro-euro Tories in next year's European elections.
The Independent revealed yesterday that Mr Sykes intended to launch a huge publicity blitz to persuade the public to vote No in any referendum on the single currency.
Mr Taylor, who will be joined by Mr Heseltine and former Chancellor Kenneth Clarke at pro-Europe fringe meeting at next month's party conference, said that he disagreed strongly with Mr Sykes campaign.
"It will cause damage. Damage to his wealth and to the Conservative Party and we have to keep well away from him," he said.
"We must distance ourselves from it. It is precisely this sort of campaign that makes me so concerned about the direction of the party ... I'm much more worried about his message and the collateral damage it will do to the party."
However, Mr Marlow said that Mr Sykes' campaign sounded like "splendid news" and said a slate of independent candidates in next year's European elections would gather significant public support.
He said: "Europe is the supreme issue of British politics. We will have European elections next year where none of the three main parties will tackle the issue of Europe itself.
"With the elections fought on the basis of proportional representation, candidates who stand firmly against the single currency are likely to gain."
Mr Marlow and fellow former Tory MP Nicholas Budgen have been threatened with expulsion from the party if they stand as independents.
Brian Sedgemore, Labour MP for Hackney South and Shoreditch, said: "The economic and political forces behind the euro are too powerful for the likes of Mr Sykes and Mr Rupert Murdoch to be deflected by extremist, ignorant hysteria."Reuse content