Attempts by European leaders to implement a "punishment plan" against Britain will fail and could lead to the breakup of the EU, David Davis has said.
The Brexit secretary used an appearance in the Commons to tell EU leaders including Francois Hollande of France and Angela Merkel of Germany that any attempt to damage Britain "is not a good strategy to pursue".
Mr Hollande last week said Britain will have to "pay a price" for the Brexit vote.
However, Mr Davis said that any attempt to cause economic damage to Britain will lead to other countries deciding to hold referendums and potentially quit the EU.
"If the EU adheres to a punishment plan and it fails, as I believe it would, then that's an even bigger incentive to countries that want to leave than no punishment at all," Mr Davis said
"The approach that is being talked about puts at risk the stability of the European Union. It's got financial instabilities of its own to be concerned with. Really it should be taking that as seriously as possible as well."
He added: "The damage done by a supposed punishment strategy would be primarily to the industries and farmers on the continent who export to this country.
"I'm afraid that Mr Hollande and Madame Merkel and others will find they have pressure back from their own constituents that says this is not a good strategy to pursue.
"We believe in this country in free trade. It's beneficial to both sides. I do not see how there is a logic in exercising a punishment strategy against one of your strongest and most loyal allies."
Both Mr Davis and Theresa May, the Prime Minister, on Monday confirmed that EU migrants living in Britain will be given an amnesty as part of the Brexit negotiations.
Mrs May said: "I expect to be able to guarantee the legal rights of EU nationals already in the UK, so long as the British nationals living in Europe - countries who are member states - receive the same treatment."
Mr Davis said that he wanted a deal done "as soon as possible". There are fears that waiting to make the announcement could lead to many migrants travelling to the UK to take advantage of any future amnesty.
May finds an ally in Denmark over Brexit talks
Prime Minister Theresa May has suggested she could have an ally for Brexit negotiations in the Danish prime minister.
Mrs May said after meeting Lars-Lokke Rasmussen in Copenhagen that he wants to "stand up for free trade", an issue on which the UK and Denmark "firmly agrees" on.
The Prime Minister's comments came as Britain's apparent stand-off with most European leaders over the terms of Brexit continued.
Mrs May told the Tory Party conference last week that she wanted Britain to have "maximum freedom" to trade with and operate in the single market free trade zone, but made clear she would not give up control over immigration.
But European leaders have indicated that ending the free movement of EU citizens would put Britain out of the single market, leading to claims that ministers are pursuing a "hard Brexit" strategy.
Speaking alongside Mr Rasmussen after their talks, the PM said: "As you have said Lars, we want to stand up for free trade - we want to ensure that people recognise the importance of free trade as a spur to economic growth.
"That is something on which I think we think very much alike and on which we firmly agree and we certainly want to be taking that argument forward and continuing to promote free trade."
PM under pressure to give MPs a vote on Brexit
Giving Parliament a vote to "second-guess" the referendum decision to leave the European Union "is not an acceptable way forward", Downing Street has said.
Prime Minister Theresa May is coming under growing pressure to allow MPs a vote on membership of the European single market, with MPs from all mainstream parties arguing that the referendum result did not amount to a vote for "hard Brexit".
Conservative MP Stephen Phillips, who backed Leave in the June 23 referendum, warned against the "tyranny" of denying MPs a vote on the Government's stance in upcoming withdrawal negotiations under Article 50 of the EU treaties.
And former attorney general Dominic Grieve cautioned that the Government could be brought down if it tried to force through a new deal with the EU without MPs' approval.