British business has issued a stark warning to MPs that they risk plunging an ill-prepared economy into chaos unless they stop playing politics at Westminster and back the prime minister’s Brexit deal.

As ministers agreed to a dramatic escalation of preparations for a no-deal Brexit, including putting 3,500 armed forces personnel on standby, the leaders of the UK’s five leading employers’ groups said the country was nowhere near ready.

With Theresa May’s deal not due to be voted on until mid-January, and significant resistance among her own MPs, a three-hour cabinet meeting on Tuesday concluded with a decision to “ramp up” no-deal readiness.

The Treasury is allocating an extra £2bn to 25 Whitehall departments for the next financial year to get ready for Brexit – including a no-deal scenario.

Planned measures include hiring an extra 3,000 customer service and compliance staff in HM Revenue and recruiting hundreds of border officers.

The prime minister’s spokesman said: “Cabinet agreed that with just over three months from our exit from the EU, we have now reached the point where we need to ramp up these preparations. This means we will now set in motion the remaining elements of our no-deal plans.”

The five business organisations – the CBI, Institute of Directors, British Chambers of Commerce, Federation of Small Businesses and the manufacturing body EEF – said they were horrified by the infighting at Westminster that has seen a meaningful vote on the prime minister’s plan delayed until the middle of next month.

Their statement will strengthen Downing Street’s case that MPs must accept the prime minister’s deal in the new year or face potential economic chaos.

“The responsibility to find a way forward now rests directly with 650 MPs in parliament,” the business groups’ statement said. “Nobody wants to prolong the uncertainty, but everyone must remember that businesses and communities need time to adapt to future changes.

“As the UK’s leading business groups, we are asking MPs from all parties to return to their constituencies over Christmas and talk to their local business communities. We hope that they will listen and remember that when they return to parliament, the future course of our economy will be in their hands.”

They said many companies had yet to make any preparations for what has until recently been seen as a remote possibility, and that it was far too late to start.

“Businesses have been watching in horror as politicians have focused on factional disputes rather than practical steps that business needs to move forward. The lack of progress in Westminster means that the risk of a no-deal Brexit is rising,” they said.

Businesses of all sizes are reaching the point of no return, with many now putting in place contingency plans that are a significant drain on time and money. Firms are pausing or diverting investment into stockpiling goods or materials, diverting cross-border trade and moving offices and factories out of the UK.

However, Westminster’s bitter factional divide showed no signs of closing on Tuesday night as the SNP and other minor opposition parties tabled a vote of no confidence in the government. The parties criticised Jeremy Corbyn for his failure to demand a full no-confidence motion in the government, with SNP Westminster leader Ian Blackford accusing the Labour leader of being happy to let Theresa May use delaying tactics to avoid a vote on her deal. “This is not acceptable and people deserve better,” he said.

Announcing the outcome of Tuesday’s cabinet meeting, May’s spokesman said ministers “agreed that delivering the deal that the prime minister agreed with Brussels remains the government’s top priority and our best no-deal mitigation”. But he added it was the government’s “continued duty to prepare for every eventuality, including a no-deal situation”.

During the marathon meeting, the work and pensions secretary, Amber Rudd, told her colleagues that preparing for a no-deal Brexit was a sensible precaution but “just because you put a seatbelt on doesn’t mean you should crash the car”.

David Gauke, the justice secretary, who said publicly at the weekend he would resign rather than be part of a government that deliberately pursued no-deal, told the meeting that a “managed no-deal is not a viable option”.

“It’s not on offer from the EU and the responsibility of cabinet ministers is not to propagate unicorns but to slay them,” he said, according to a cabinet source.

A “managed no-deal” is the approach favoured by ministers including Penny Mordaunt and Andrea Leadsom, who believe the government could pay part of the £39bn it has agreed it owes the EU to “purchase” a status quo transition period.

The former Brexit secretary Dominic Raab wrote in the Telegraph that leaving on World Trade Organization terms would be better than “being trapped in a lousy deal” and suggested using the £39bn set aside for the EU divorce bill to offer tax cuts to businesses to help with the transition.

The former Tory minister Nick Boles responded to Tuesday’s no-deal news from the cabinet by saying he would immediately resign the Conservative whip if it was adopted as government policy – and if necessary, vote with opposition parties to prevent it from happening.

The business leaders said the lack of progress at Westminster meant the government had no choice but to step up no-deal planning. “But it is clear there is simply not enough time to prevent severe dislocation and disruption in just 100 days. This is not where we should be,” they said.

The statement was signed by Adam Marshall, the director general of the BCC; Carolyn Fairbairn, director general of the CBI; Stephen Phipson, the chief executive of the EEF; Mike Cherry, the national chairman of the FSB; and Stephen Martin, the director general of the IOD.

Downing Street said delivering the prime minister’s deal “remains the top priority”, but when presented with three options on whether to increase, maintain or wind down preparations, there was unanimity in the cabinet to implement all no-deal contingency planning across departments. The public will be advised what contingency measures to take, through a “range of channels” that could include TV adverts and social media.

HMRC will prepare a 100-page pack for all UK businesses on preparing for no-deal and will send out about 80,000 emails to them.

May will meet the leaders of the devolved administrations in Downing Street on Wednesday in her latest attempt to build support for her deal.

She said: “It is more important than ever that the devolved administrations get behind this deal and listen to businesses and industry bodies across all four nations who have been clear that it provides the certainty they need.”

Scotland’s first minister, Nicola Sturgeon, is implacably opposed to Brexit, but May said: “Now is the time for us to pull together and harness our efforts behind this deal.”