Ms Soubry told BBC2's Newsnight: "If it comes to it, I am not going to stay in a party which has been taken over by the likes of Jacob Rees-Mogg and Boris Johnson.
"They are not proper Conservatives.
"And if that means leaving the party, form some new alliance, God knows I don't know.
"But we just simply cannot go on like this any longer.
"Something is going to have to give because if it doesn't not only will we get Jacob Rees-Mogg as our prime minister, we will get a devastating hard Brexit which will cause huge damage to our economy for generations to come."
Ms Soubry added: "Unless Theresa stands up and sees off these people she is in real danger of losing huge swathes of not just the parliamentary party but the Conservative Party."
Ms Soubry called for a re-evaluation of what the Tories represented, stating: "Labour's frontbench itself is ideological.
"My frontbench probably isn't, but it is in hock to 35 hard ideological Brexiteers who are not Tories.
"They are not the Tory party I joined 40 years ago and it is about time Theresa stood up to them and slung 'em out.
"They have taken down Major, they took down Cameron, two great leaders neither of whom stood up to them.
"We have to get a Conservative Party which is what it has been for decades, the party I joined 40 years ago, proper, One Nation, centrist, small l socially liberal, fiscally sensible, economically sound Conservatives."
Tory former chancellor and prominent Leave campaigner Lord Lamont told the BBC: "I think that's quite ridiculous frankly. I don't want to be rude about Anna Soubry, but I think she does sometimes tend to go over the top."
The comments came as Mrs May's Brexit "war cabinet" is due to meet on Wednesday and Thursday to continue discussions on the "end state" relationship which the UK will seek with its former EU partners.
Meanwhile, it was reported the UK could have to accept nearly 40 EU directives during a two year transition period.
Leaked Whitehall analysis revealed Britain may have to adopt measures including households having four different recycle bins, according to The Daily Telegraph.
Other directives could "enable Brussels to mount a massive raid on the City of London and bind the UK to renewable and energy efficiency targets for up to a decade after leaving the EU", the newspaper said.
Mr Rees-Mogg told the The Daily Telegraph: "European Union laws that could come in after we have left may look to the Government as 'a cloud no bigger than a man's hand' but could turn into a torrent similar to the one unleashed by Elijah.
"It could drown the City of London, soak consumers and flood farmers. The range and extent of these laws covers almost everyone in the country one way or another and we would have no say at all over some laws that we could now veto."
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