Labour’s deputy leader, Tom Watson, has warned MPs and peers that an analysis of the party’s losses in recent local and European elections that was presented to the shadow cabinet last week dangerously underestimated the crisis it will face if it fails to back another Brexit referendum.

In a briefing document circulated to more than 100 Labour MPs and peers yesterday, Watson says sections of the analysis leaked to the media have “skewed” understanding of the party’s plight. He warns that if Labour does not face the actual lessons and become a Remain party, it risks electoral disaster.

In his memo, obtained by the Observer, he challenges five of the key points made to the shadow cabinet in the briefing, which cast doubt on the benefits of Labour becoming a more explicitly pro-Remain party.

Watson warns that unless Labour grasps the reality of its position, it faces a “catastrophic loss of votes” to the Liberal Democrats and Greens “that could enable a Conservative landslide” at a general election.

His intervention comes ahead of further discussion at the shadow cabinet on Tuesday of Labour’s Brexit position. After last week’s meeting, the party issued a statement that disappointed supporters of a second referendum and appeared to leave Labour’s nuanced position on another public vote unchanged, while not committing the party to a clear pro-Remain stance.

Next week will be a historic moment for our party. If we get the decision wrong, we could become electoral history. Tom Watson

Watson is concerned that accounts of last week’s meeting released to the media misrepresented the full picture, fundamentally underplaying the extent of the loss of votes from Labour to Remain parties, while overplaying the danger to the party of adopting a more pro-Remain policy in key seats that backed Leave in the 2016 referendum.

Watson says accounts of the shadow cabinet analysis “may have skewed understanding within the media, the party and the shadow cabinet about the huge challenge confronting Labour”.

In a message to his Future Britain group of MPs and peers, which is backing its own centre-left set of policy approaches, he says: “Many people in this group have contacted me following the Brexit shadow cabinet that took place this week and ahead of the key shadow cabinet that will next week decide the future of Labour’s policy on Brexit, and in particular whether the party will campaign to remain in a referendum on any future deal.

“Jeremy has already committed Labour to holding a confirmatory public ballot on any future Brexit deal, whether the deal is negotiated by the Tories or by Labour. That is the right thing to do. What is yet to be decided is if Labour should campaign for Remain in that referendum. It is my firm belief that we should. The majority of Labour’s members and voters are Remain. Our hearts are Remain and our values are Remain.” He adds: “Next week will be a historic moment for our party. If we get the decision wrong, I fear we could become electoral history.”

On Sunday, the former Labour foreign secretary Margaret Beckett called on Corbyn to repeat the approach used by then Labour prime minister Harold Wilson in 1975 by calling a referendum but allowing his top team to campaign as they wish. Writing for the Observer online, Beckett says: “Jeremy Corbyn is now said to be studying the history of the 1970s as he grapples with this problem. Labour can and should back a referendum on any Brexit outcome. And, if we get such a vote, I think it is inevitable that Labour will once more support staying in the EU because the idea that we can secure a deal that will satisfy – rather than impoverish – our voters, has long since been exposed as a fantasy.

“Those who still insist they want to leave could, if they wish, campaign alongside Boris Johnson and Nigel Farage in such a referendum. Jeremy himself could take a back seat in the campaign, as Harold did in 1975. What matters now is that Labour moves with speed to close the gap that has opened up between party’s position on the one hand – and its members, voters and values on the other.

“If we do this in the next few weeks we can still change the course of history. If we don’t, we risk becoming history ourselves.”