Sadiq Khan has told Michel Barnier the EU must prepare to delay Brexit given the lack of support in parliament for a deal, and growing support for a second referendum.

The mayor of London said he “quite forcefully” made the point during an hour-long meeting with the EU’s chief negotiator that Brussels must be ready for the UK to stay as a member state beyond 29 March next year.

An extension of the two-year negotiating period, allowed under article 50, would need the unilateral support of the 27 other member states, which Khan suggested the European commission needed to start work on.

The mayor, a former Labour MP, said there was no majority in the Commons for a deal and that the “politicians had failed”. Extra time, he said, would be required to allow a second referendum to be staged on the terms of the UK’s deal with the EU.

“The point I made to Michel Barnier, really quite forcefully, is that there is a possibility of the British parliament rejecting the deal that Mrs May secures from the EU,” Khan told the Guardian. “There is a very real possibility of there being either a general election, which I think is less likely, or a referendum. In those circumstances I suggested the EU should begin preparatory work on the extension of article 50.

“Because what would not be a good thing in my view is if we managed to get a referendum but it was too late because we had left the EU or the EU had not made preparations for an article 50 extension.”

Khan added: “Whatever Theresa May brings back will probably be rejected by cabinet, almost certainly rejected by the party, and if not will definitely be rejected by parliament

“That’s why I said to Michel Barnier: listen, you need to start preparing for the possibility of extending article 50 because if that is the case we will need time to have a referendum.”

Khan admitted the talks had reached “squeaky bum time”, but he cautioned Labour MPs not to fall for the narrative that the only options are a no-deal Brexit or the limited free trade agreement that is being negotiated by Brussels and Downing Street.

Earlier this year, Sir Mark Boleat, a former policy chairman at the City of London Corporation, said Brexit could result in the loss of 75,000 jobs in the City of London and up to £10bn in annual tax revenue once the full repercussions of the free trade deal being negotiated become clear.

The deal so far offered by the EU does not provide any security for the City’s financial services sector that they will be able to continue to operate across Europe from London after Brexit, with many being forced to establish continental operations.

Khan said: “The point I made to Michel Barnier is the same point I make to parliamentarians who will be voting shortly on this.

“It is a false choice to think that the only options are a bad Brexit deal or a no deal. My concern is that because a no deal is so catastrophic that MPs will think the only sensible option is to vote for the deal that Prime Minister May has negotiated which is a bad Brexit deal.

“It would be bad for the UK and London, but it would be bad for the EU too. Nobody should presume that jobs that leave London in the financial sector are going to Paris, Frankfurt, Madrid. They are more likely to go to New York, Singapore and Hong Kong.”

Khan also said he believed it would be a poor decision to leave the EU without clarity over the terms of a future deal.

He suggested he could end up supporting an option being pushed by the Tory MP Nick Boles for the UK to emulate Norway by being a member of the European Economic Area (EEA) and the European Free Trade Association (Efta) for a period after Brexit, should a general election or second referendum not materialise. Under the proposal the UK would also continue with current customs arrangements.

He said: “If it is the case that we can’t get a public vote or a general election then that’s the next best thing.”