John McDonnell has said Labour should form a minority government if Theresa May fails to get her Brexit deal through the Commons, as the prime minister prepares to travel to Brussels to attempt to strike a final agreement.

The shadow chancellor said the government was in chaos, with its confidence and supply arrangement with DUP in disarray, and May’s chances of getting her Brexit proposals through parliament looking increasingly remote.

“We just can’t go on like this. We just cannot go on with this instability, uncertainty that there is in government, day by day and sometimes hour by hour,” he said.

McDonnell told business leaders that if the government’s deal was rejected in a meaningful vote next month, May would return to Brussels to seek concessions. If it fell again, then Labour should be given the chance to form an administration.

“At that stage, we will be saying give us the opportunity. You’re a minority party, give us the opportunity to take over and see if we can form a government, a minority but with a majority position in parliament,” he said.

“If that’s denied us then we will be pressing for a general election, but as you know you need that two-thirds majority it’s very difficult to get. Anything could happen at that stage.”

At the Reuters event in London, McDonnell confirmed that Labour would support a second referendum if it was unable to form a minority government or to force a general election – but was equivocal on whether remain would be on the ballot paper.

“Then it is coming back to parliament, then seek a majority for going for some second referendum, that’s when the discussion takes place about the nature of the vote,” he said.

The shadow chancellor, however, while failing to guarantee a remain option, said that would be “part of the discussion” down the line and that he was trying “not to alienate” anybody from the debate. Labour delegates agreed at conference to keep all options on the table.

McDonnell said MPs would prevent a “cliff-edge” Brexit and there was no majority in parliament for a no-deal Brexit. “We cannot countenance no deal. It gives you some security we will not fall off the cliff-edge. There is a will in parliament to prevent that happening,” he said.

He played down expectations of Labour MPs voting for the prime minister’s plan, even though five Brexiters in the party had previously voted with the Conservatives. “I think we’ll hold our side now. I really do, and we have done on the votes this week,” he said.

The Guardian 21 November Pippa Crerar Deputy political editor