The pro-EU former chancellor told the New Statesman: “Nobody in the Government has the first idea of what they’re going to do next on the Brexit front.”
He also criticised the so-called “three Brexiteers” - Foreign Secretary Boris Johnson, Brexit Secretary David Davis and International Trade Secretary Liam Fox.
Mr Clarke warned the trio, who are tasked with delivering Brexit, that “serious uncertainty in your trading and political relationships with the rest of the world is dangerous if you allow it to persist”.
His comments come ahead of the Conservative Party conference, beginning on Sunday, which looks set to be dominated by splits over whether to pursue a so-called “hard Brexit” outside the European single market or to remain in the free trade zone.
The Prime Minister will have trouble maintaining party unity whichever option she takes, Mr Clarke said.
“Whatever is negotiated will be denounced by the ultra-Eurosceptics as a betrayal,” he said.
“Theresa May has had the misfortune of taking over at the most impossible time. She faces an appalling problem of trying to get these ‘three Brexiteers’ to agree with each other.”
He also singled out Mr Johnson and his former Vote Leave ally Michael Gove for giving “respectability” to “(Nigel) Farage’s arguments that immigration was somehow a great peril caused by the EU”.
Mr Clarke made clear he would vote against Brexit in the Commons, if given the opportunity, describing the referendum as an “opinion poll” and David Cameron’s decision to call it as “catastrophic”.