Mr Denham said: “It is a significant issue for Southampton as well as Portsmouth.
“You are probably talking about an even more significant impact on south Hampshire than we got from Ford. There are more people working there, and a greater concentration of highly skilled workers and it is one of the most significant manufacturing bases anywhere in the south. To lose it would also have a big national impact.
“It would leave an irreplaceable hole in the economy of south Hampshire. We need Government ministers to be getting a grip, not wringing their hands.”
A decision on the future of the shipyard is likely to be made by the end of the year.
Defence giant BAE is considering closing one of its major shipyards, with Portsmouth widely thought to be most at risk.
The end of shipbuilding at the historic dockyard would have a devastating effect on the wider Solent economy, costing nearly 4,000 jobs in a worst case scenario, according to a recent study commissioned by Solent Local Enterprise Partnership.
Many workers transferred with shipbuilder Vosper Thornycroft when it moved from Southampton to Portsmouth ten years ago and still travel to work along the coast.
The future of its three major bases – one at Portsmouth and two in Glasgow, at Govan and Scotstoun – has been under threat after BAE launched a review of its maritime operations at the start of the year.
BAE said it was in contact with the Ministry of Defence as it reviews its shipbuilding future.
The group employs about 3,500 staff at its Glasgow shipyards and nearly 5,000 at Portsmouth. BAE has been coming under pressure from Government spending cuts and it is feared there will not be enough work to keep all three sites profitable.
It comes after Southampton was rocked by the imminent closure of the Ford plant at Swaythling, with the loss of 500 jobs plus many more in the supply chain.