The idea was put forward by a private sector member of the review committee, who argued that the division of Britain's defence services into three competing units is anachronistic and wasteful.
Ministry of Defence chiefs reacted in horror at the suggestion, which might find favour with the public in a post Cold War era, but flies in the face of all military traditions.
The reaction of one junior minister was unprintable, and defence chiefs are certain to mount a powerful attack on the idea if it forms part of the final report of the review committee, due in the summer of 1998.
A single defence service bringing together all fighting units would save huge amounts of money and simplify the chain of command, it was argued during the MoD review committee's deliberations.
But defence chiefs argue that soldiers, sailors and airmen owe their first loyalty to, and fight for, their unit or regiment - not an amorphous concept like "Great Britain Defence Ltd".
They point to moves to integrate the Canadian armed forces as proof that the three services are distinct fighting groups and cannot effectively be merged.
However, the Treasury is known to be looking for economies in the MoD's annual pounds 22bn budget, on top of the pounds 170m savings ordered for the current year because of overspending by the department during the last year of Conservative rule.
The Prime Minister has promised to maintain overall defence spending for the next two years, in line with Labour's promise to sustain Tory public expenditure plans for that period. But eight out of 10 Labour MPs agree with Chancellor Gordon Brown's demand for a bigger "peace dividend".
Among the options being examined by the defence review are the merging of some helicopter operations between the RAF and the Army, a joint fighting unit between the Paras and the Marines and more use of Navy aircraft carriers by the RAF.
Other possible cuts include a dramatic reduction in the ranks of the Territorial Army from 56,000 to 35,000 and the mothballing of some RAF Tornado squadrons - including the famous 617 "Dambusters" squadron.
The number of tank regiments stationed in Germany could also be cut by one-third.
The Chancellor's National Register of Assets - the new "Domesday Book" - has also identified substantial surplus land and property holdings by the MoD that look certain to be sold off, particularly after Britain agreed to spend billions of pounds acquiring more than 200 Eurofighters.
Defence chiefs fear that despite Labour's pledges to maintain spending at 1997-98 levels, nearer the general election political pressure to make substantial savings will mount in order to deliver the Government's promises of real in- creases in expenditure on education and the NHS.Reuse content