Sherwood Forest Hospitals NHS Foundation Trust could have its licence to treat patients revoked if it does not make the improvements required.
Professor Sir Mike Richards, chief inspector of hospitals at the CQC, made the threat following the publication of the latest report on the trust last month, which showed a decline in its ratings.
It is now inadequate in safety, leadership and is in breach of regulations.
Monitor and the CQC have agreed the trust needs a “close tie-up with a long-term partner trust” to enable it to deliver long-lasting improvements for patients.
In a letter to Health Secretary, Jeremy Hunt, Sir Mike said he expects to see “firm progress” made by the end of January 2016 regarding the nature of the external support that will be given.
He wrote: “Should this not prove possible, we will not hesitate to use our powers and take further enforcement action.
“In particular, this will include consideration of beginning the process to cancel the registration of Sherwood Forest NHS Foundation Trust.
“Cancellation would mean the trust would not be able to provide any regulated activities.”
Sir Mike said those responsible for commissioning health services currently delivered by the trust – the CCGs – are expected to address the need for alternative provision to be in place to ensure continuity of services.
It is for this reason that the CCGs have now put contingency plans in place and are seeking the public’s views about them.
Karen Fisher, acting chief executive at Sherwood Forest Hospitals NHS Foundation Trust, said: “We welcome the support of local organisations in helping us to respond to our challenges as outlined within the CQC reports.
“We recognise there is a need for longer-term partnership arrangements and we are determined to work with our national and local partners to find an appropriate solution.
“We hope to have clarity by the end of January 2016.”