Michel Barnier has warned Theresa May that leaving the Customs Union will result in "unavoidable barriers to trade" as he said: "the time has come to make a choice".
Barnier, the EU's chief Brexit negotiator, is in London for talks with David Davis, the Brexit Secretary, and the Prime Minister ahead of the next round of negotiations.
The Prime Minister this weekend ruled out staying in any form of Customs Union with the EU after Brexit following a revolt by senior Eurosceptics.
Speaking ahead of the meeting, Barnier said: "There is so much work so we have decided for this reason to accelerate all the contacts."
He added that "without a customs union and outside the single market", barriers to trade in goods and services "are unavoidable".
"The conditions are clear, very clear," he continued. "Everyone has to play by the same rules during this transition.
"Let me add one point about this transition, the certainty about the transition will only come with the ratification of the withdrawal agreement.
"Without the customs union, outside the single market, barriers to trade and goods and services are unavoidable. The time has come to make a choice."
Welcoming Barnier to Downing Street, Davis described today's meeting as "constructive ... as always".
He added that the Government's focus had now shifted to the implementation period, which he said would provide "clarity to both governments and business".
"We are very keen that we continue to have an extremely good and close relationship that we, that relationship be on economic and other grounds, and that it will continue in the long term.
"We have to, however, in the next few months, arrive at the immediate outcome, the political agreement on the implementation period. Our negotiating team starting straight away - tomorrow certainly - on an intensive period of negotiation, and we are confident that we can get that political agreement at the March Economic Council."
Barnier's warning comes after May dismissed any possibility of remaining in the customs union following the transition period, in a move which has been hailed as a significant victory for Brexiteers.
Downing Street said it had wanted to "put to rest" the debate which has raged for weeks, amid mounting pressure from Tory backbenchers for the Prime Minister to clarify her Government's position.
It came as reports circulated of a plot to topple May if she bowed to the will of remain MPs, with Boris Johnson, Michael Gove and Jacob Rees-Mogg touted as a potential leadership trio.
Putting the issue to bed, a Downing Street source said: "We must be free to sign trade deals with the rest of the world ... so it is not our policy stay in the Customs Union. It is not our policy to stay in a customs union."
Downing Street acted after Amber Rudd, the Remain-supporting Home Secretary, alarmed Eurosceptics by hinting that a Cabinet compromise was close.
Speaking on BBC1's Andrew Marr Show, Rudd said: "I have a surprise for the Brexiteers, which is the committee that meets in order to help make these decisions ... is more united than they think.
"I think that we will arrive at something which suits us all. There may be – there will be choices to be made within that - but we all want the same thing which is to arrive at a deal that works for the UK."
Later this week the Cabinet's Brexit sub-committee will meet twice, for a total of four hours, to discuss what Britain wants from a future trade deal with the EU.
High on the agenda will be the row over the status of EU nationals who come to the UK during the transition period , with May clear that she will resist EU proposals for them to be granted permanent stay in the UK after 2019.
A Downing Street spokesman said: "The point the PM made is that people who arrive after we have left the EU will arrive with different expectations and understandings of the way forward - and they will therefore be treated differently.
"Precisely what that looks like is a matter for negotiations over the next few weeks. People will be free to live and work here. The issue is the rights they accrue as a result."