Gordon Brown has proposed a "third option" of giving Scotland vast new powers in exchange for remaining in the UK.
During a speech in Kircaldy, the former PM said there was a better way forward that would see EU powers repatriated to the Scottish Parliament, Welsh Assembly and the regions - not Westminster.
He said it would be better for jobs, as well as health and public services.
"If we do nothing then there'll be a huge centralisation of power in Whitehall and it is exactly that that people in every part of the country want to get away from," said Mr Brown.
"If £4bn of expenditure that is now conducted in Britain by the EU is simply transferred to Whitehall then that is one of the biggest power grabs that you can see."
The proposal would give Scots control after Brexit of the £800m they currently contribute to the EU.
Mr Brown also warned First Minister Nicola Sturgeon that breaking away from the UK and "leaving the British single market" would be a massive risk to Scottish jobs and trade.
"65% of our trade is with the rest of Britain - only 15% is with the European Union," he said.
"If the issue is - as she says - job and industry and investment and trade for the future, then you cannot discount the £50bn of trade we have with the rest of the UK and simply talk only about the £12bn of trade we have with the European Union."
Mr Brown also wants the Bank of England to become the Bank of England, Scotland, Wales and Northern Ireland - with staff representing all parts of the UK.
But his intervention is unlikely to satisfy Mrs Sturgeon, who will warn Theresa May that she will "shatter beyond repair" the notion that the UK is a partnership of equals if she refuses a referendum.
MSPs are expected to back her bid for a second poll on Wednesday.
The SNP leader announced this week that she will seek an independence referendum between autumn 2018 and spring 2019 - though she will tell party members in Aberdeen that she is "happy within reason" to talk about the timing.
But she will add: "If a majority in the Scottish Parliament endorses that position, the Prime Minister should be clear about this.
"At that point a fair, legal, agreed referendum - on a timescale that will allow the people of Scotland an informed choice - ceases to be just my proposal, or that of the SNP. It becomes the will of the democratically elected Parliament of Scotland."
:: Watch live coverage on Sky News of Nicola Sturgeon addressing the SNP spring conference at 3.45pm.