Michel Barnier has told the UK that "the time has come to make a choice" on the customs union, warning "being outside means there will be unavoidable barriers to trade".
The European Union's chief negotiator visited Downing Street for talks with British Prime Minister Theresa May and UK Brexit Secretary David Davis in which he pushed for greater clarity about the UK's approach to the next phase of the process.
His visit to London came as Downing Street ruled out remaining in a customs union with the EU after Brexit.
Mr Barnier said that "without a customs union and outside the single market", barriers to trade in goods and services "are unavoidable".
"The only thing I can say, without a customs union and outside the single market, barriers to trade and goods and services are unavoidable," he said, adding that the "time has come to make a choice".
Mr Barnier said he wanted the UK to clarify its position on what the future relationship would be.
Mr Davis said he was confident he could get agreement on a transition by the March EU summit.
Mr Davis said the talks had been "very constructive" and the next round would focus on the implementation period.
An "intense" period of negotiations will begin straightaway and the government is "confident" of securing an agreement at the next meeting of EU leaders in March, he said.
He said the UK wanted a comprehensive free trade agreement while still having the opportunity to make deals across the rest of the world.
He said: "It's perfectly clear what we want to do. There's no doubt about it, we are leaving the customs union but we are aiming for a good future for Britain."
Earlier, Mr Barnier said that there was not a minute to lose in negotiations on Britain's divorce with the EU.
Mr Barnier's visit comes at the start of a busy Brexit week and potentially a crucial week for Mrs May's leadership.
UK and EU negotiating teams are due to hold technical discussions in Brussels this week about what a transition deal might look like.
The British government's Brexit cabinet sub-committee will meet on Wednesday and Thursday.
On the agenda is the crucial issue of what kind of deal Mrs May's government wants to strike with the EU as it leaves.
Frustration among many in Mrs May's party about the prime minister's post-Brexit vision has boiled over into public criticism of her leadership.
Failure to clarify what the plan now is, could put further pressure on Mrs May's premiership amidst continuing talk of plots and plans to oust her as prime minister and party leader.
Meanwhile, Taoiseach Leo Varadkar has said there is a lot of work happening behind the scenes to ensure the commitments on the Irish border agreed last December are fully reflected in the UK's withdrawal agreement from the EU.
Both the EU and Britain committed to the retention of a free-flowing border between Ireland and the UK following Brexit.
Mr Varadkar also said that his Government wants a transition phase that gives Irish businesses time to adapt to permanent changes.
"As soon as we have more clarity from London as to how they see the future relationship between the UK and the EU, the better," he said.
He said he is not entirely clear what is being sought by London in terms of the UK's future relationship with both the customs union and the single market.
Additional reporting by Mícheál Lehane