London Mayor Boris Johnson, one of Britain's most popular politicians, announced on Sunday he supported leaving the EU bloc, dealing a blow to Cameron who struck a deal to reform Britain's relations with the EU last week.
The mayor's announcement, widely regarded as increasing the chance of a British EU exit, saw sterling on course for its biggest one-day loss against the dollar in 11 months while British bond prices also fell.
"I'm delighted that he's come out for leaving the European Union," former finance minister and chairman of the Vote Leave campaign Nigel Lawson told BBC radio. "He is a superb campaigner so he's a great asset."
While Cameron's most senior Cabinet colleagues have stuck with him, five others have said they would campaign for a British exit, highlighting the deep divide in Cameron's Conservative Party over Europe, dating back to the days of Margaret Thatcher in the 1980s.
However, Johnson's intervention is seen as significant, giving the "out" campaign a de facto figure head. Betting odds of a British exit rose to a 33 percent chance from about 29 percent after his announcement, according to bookmakers.
Johnson, 51, a political showman whose eccentric persona masks a fierce ambition to succeed Cameron, said on Sunday he did not want to go against Cameron but believed the EU project was in danger of getting out of democratic control.
On Monday, Johnson declined to elaborate further, saying he was focusing on his last budget as London mayor, a post he has held since 2008. "There will be plenty of time to talk about Europe and the great future that Britain can have outside the European Union in the next few weeks," Johnson, who is also a Conservative member of parliament, told reporters.
Sterling was on course for its biggest one-day loss in 11 months, after the start of European trade, down 1.5 percent on the day. The pound also fell against the euro on concern that Britain would quit the bloc it joined in 1973. The cost of hedging against sharp weakness in the sterling exchange rate shot up to its highest in more than four years.
Cameron is due to make a statement to lawmakers about his EU negotiations later on Monday when the scale of divisions in the Conservative Party over the EU should become clear. What role Johnson will play in the leave campaign is not known as he said he would not take part in debates against members of his own party.
That has led some commentators to question whether his stance is a calculated gamble designed to attract widespread euroskeptic support among Conservatives in a future leadership bid to succeed Cameron, who has said he will step down before the next election in 2020.
Johnson's supporters dismissed such suggestions, describing the decision to oppose the prime minister as a matter of principle. "To say that this is a careerist sort of move would be a total travesty," his father Stanley, a former Conservative member of the European Parliament, told BBC radio. "I can't think of any more career ending move than to do what he did yesterday."
A British exit from the EU would rock the Union -- already shaken by differences over migration and the future of the euro zone -- by ripping away its second-largest economy, one of its top two military powers and by far its richest financial center.
