By Richard Savill Telegraph Last Updated: 3:03PM BST 12 Sep 2008
The MoD said the 18th century warship could be too expensive to maintain and that her funding was currently under review.
This could see her looked after and run by a private firm or a charity to save cash, options which critics said would be a "tragedy".
The MoD said that increasing budgetary pressures meant it must review Victory's future like any other ship but insisted it would remain part of the Royal Navy.
But a former Commanding Officer of Victory and ex-First Sea Lord said handing the oldest commissioned warship in the world to a private company would "turn it into Disneyland" and make a mockery of Britain's naval heritage.
Victory, which was built between 1759 and 1765 and is best known for her role in the Battle of Trafalgar, sits in Portsmouth Historic Dockyard, Hants.
The Battle of Trafalgar was one of the most decisive naval actions in British history as it established Britain's supremacy at sea and freed the country from the long-held fear of invasion from Napoleon's armies.
The battle off Cape Trafalgar, in southern Spain, pitched the Royal Navy against the combined fleets of France and Spain. Nelson died after he was shot by a French marksman as he stood on the quarterdeck of HMS Victory.
Lt Cdr Michael Cheshire, now retired, who was Commanding Officer of Victory from 1992 to 1998, and was awarded an MBE for his services to the Royal Navy, said: "If they sell her or give her away to charity it will be an absolute tragedy.
"This magnificent ship means so much to both naval people and the whole nation. Selling it to a private firm would turn it into Disneyland and would be its ruin.
"HMS Victory is the core of the naval base, the core of Portsmouth, and to sell off this icon would indicate the decline of the Royal Navy."
HMS Victory costs a minimum of £1.5 million to maintain and run each year, but that figure can rise when major work is needed.
About 400,000 people visit her annually, with entrance fees divided up and shared between all the major attractions at the dockyard.
The MoD said it was considering whether to allow Victory to be looked after by a private company, a charitable trust similar to the one that looks after the Mary Rose, another government department, or keep the status quo.
Lady Taylor, Defence Minister, said HMS Victory would remain part of the Royal Navy.
"Nothing will change in that respect," she added. "The objective for this study is the sustainability of HMS Victory as a museum ship and commissioned Royal Navy warship."
An MOD spokesman said: "We will not be giving her away or decommissioning the ship. It is currently run by the Navy and retired Navy personnel show the public around the ship.
"The consultation is designed to produce a relationship between the Royal Navy and any of the options, without the Royal Navy and the public losing control of the ship."
The spokesman said the options would include a company limited by guarantee.
Second Sea Lord Vice Admiral Alan Massey said: "The review will openly and equally examine all the options available to us to ensure that HMS Victory continues her distinguished naval career in the best possible state."
