The government has warned P&O could face unlimited fines if redundancies are found to be illegal.
It has also announced it is reviewing its contracts with the beleaguered operator after a day of angry protests in Dover.
Transport Secretary Grant Shapps and Business Secretary Kwasi Kwarteng sent separate letters to P&O Ferries chairman expressing the government’s anger at the situation.
Mr Kwarteng said the company had “lost the trust of the public and has given business a bad name”, while Mr Shapps said all Government contracts with P&O Ferries and its owner DP World would be reviewed and all the firm’s vessels would be subject to inspection by the Maritime and Coastguard Agency before they resumed sailing.
Downing Street said the government is looking to see if P&O has broken any rules.
“We are looking very closely at the actions that this company has taken to see whether they acted within the rules,” the Prime Minister’s official spokesman said.
“Once we have concluded that, we will decide what the ramifications are. Obviously there are a lot of valid questions in relation to existing contracts.”
He said companies should only make “extreme decisions to secure the future of their business if all other avenues have failed”, adding: “We don’t believe this was the case for P&O staff but we are looking into this very carefully.”
He added that senior officials in the Department of Transport were informed by the P&O chief executive on Wednesday evening of what the company was planning to do.
The threat of huge fines, and the revalation it is losing £1m each day its ferries cannot sale, piles further financial pressure on the firm
It had already claimed that it had no viable future if it did not make yesterday's changes.
But in an attempt to defend their actions, the company issued a statement claiming the redundancies were a "last resort" and that they did so without consultation first because they thought reaching an agreement would be 'impossible'.
Protests at Dover today
The ferry company has also denied that security brought in to accompany staff off their ships were wearing balaclavas, nor did they use handcuffs or force.
The firm, which has its headquarters in Dover, says it is offering staff 'enhanced severance' due to the lack of notice.
And following backlash that some colleagues were told of their job loss over a Teams meeting, P&O said "only 261 of our 800 affected staff were on those calls".
It comes as seafarers and their supporters held a second rally in Dover today, following a blockade yesterday.
Hundreds of people marched through the town towards the port, holding banners and waving flags while chanting 'seize the ships'.
They were calling for jobs to be re-instated, while some were demanding a boycott against P&O.
A group also marched to Channel House, the head offices of the ferry firm, which is owned by the Dubai-based DP World.
In London, protesters marched to DP World's offices in London and called for the services to be nationalised.
But P&O claims the only way for the company to survive was for crewing arrangements to be changed, and is now bringing in agency workers to run its ships - three of which are docked in Dover's harbour.
It is also hoping its services will be back up and running within days, as it says it is losing £1million a day while crossings are halted.
The full statement from P&O Ferries said: "We know that for our staff this redundancy came without warning or prior consultation, and we fully understand that this has caused distress for them and their families.
“We took this difficult decision as a last resort and only after full consideration of all other options but, ultimately, we concluded that the business wouldn’t survive without fundamentally changed crewing arrangements, which in turn would inevitably result in redundancies.
“We also took the view, in good faith, that reaching agreement on the way forward would be impossible and against this background, that the process itself would be highly disruptive, not just for the business but for UK trade and tourism.
“We have offered enhanced severance terms to those affected to properly and promptly compensate them for the lack of warning and consultation.
"The changes we've made bring us into line with standard industry practice.
"All affected crew who were working yesterday were notified face-to-face and in-person on board their vessels.
“For crew who were off, P&O Ferries made all efforts to notify them personally: they were individually called on the phone, as well as via email and text.
“Virtual meetings were also held but only 261 of our 800 affected staff were on those calls.
“To try to minimise disruption for our customers, we contacted everyone we could reach.
“If any passengers have any queries about travelling with us, we encourage them to get in touch with our customer services team.
“Our aim is to have the first of our services running again in the next day or two as we lose £1m a day for each day they are not moving.
“The teams escorting the seafarers off our vessels were totally professional in handling this difficult task with all appropriate sensitivity.
“Contrary to rumours, none of our people wore balaclavas nor were they directed to use handcuffs nor force.”