In a barely coded challenge to the party's right, Mr Clarke said: "The European Union is not a threat. Leading European politicians are not a threat. We should leave that paranoid nonsense to people in the Referendum Party."
Mr Clarke's comments came as the Conservatives were forced - amid protests from pro-European Tories - to shelve their Eurosceptic advertisement. At least 10 former MPs, including the former foreign secretary, Douglas Hurd, complained to Downing Street yesterday about its anti-European tone.
The Labour leader, Tony Blair, took advantage of the Tory disarray, outflanking his opponents by taking one of his toughest- ever stands on a single currency and voicing concerns about the way the EU is developing.
In an interview with the Independent on Sunday, he stressed his willingness to be isolated in the EU if necessary, listed a series of economic and constitutional objections to monetary union, and said he would not surrender tax-raising powers to Brussels.
Mr Blair branded the Conservatives a "degenerate" party. In a marked hardening of Labour's language, he sought to reassure sceptical voters, arguing that while he did not seek isolation as a policy: "You must always be prepared to be isolated if it is in the national interest."
But it was the Eurosceptic advertisement caricaturing Mr Blair which dominated the Conservative slanging match.
Sir Edward Heath, the former prime minister, told BBC's Newsnight: "The publicity of the party so far has been quite appalling, absolutely awful, ineffective, and in fact offensive." Asked about the Blair advertisement, he added: "Senior members of my own party thought it was abhorrent." Sir Edward called for the sacking of the author of the advertisement, apparently oblivious to Tory claims that the Deputy Prime Minister, Michael Heseltine, was its originator.
The Chancellor publicly defended it, insisting it was not anti-German: "I take it to be aimed at Tony Blair, in the long-hallowed tradition of political caricature, to say he is not in the first division of European statesmen."
But one source said the Chancellor "was not amused and was not consulted". Another said the Eurosceptic campaign theme from Central Office had reached its high-water mark, and that the Tories would return to the attack on the economy this week.
Lord Howe, the former foreign secretary, also attacked the advert. Ian Taylor, Minister for Science, told Radio 4's Today programme: "That advertisement helps the view that Europe is a threat and our allies in Europe are somehow threatening."
While keeping formally to the "wait and see" policy, Mr Blair added that joining a single currency had "constitutional and political implications", though these were not necessarily insuperable. He listed a range of economic problems, arguing: "You are yielding up the ability to get the exchange rate flexibility which is one way of dealing with changing economic circumstances."
And the Labour leader said he would not agree with any proposals to give up tax-raising powers - matching a pledge Mr Major gave last week.