Ferrari's Vettel leads the world standing by 25 points, the equivalent of a full race, after winning a Monaco Grand Prix in which Mercedes' Lewis Hamilton failed to progress past Q2 before finishing the race seventh.
The Mercedes team's non-executive chairman pointed to a struggle to come to an understanding of the ultra-soft tyre as a significant problem, with Hamilton twice missing the podium so far in 2017 while Vettel has not finished outside the top two.
“We need to find a solution for the tyre window,” Mercedes non-executive chairman Niki Lauda told Kronen Zeitung.
“And one thing is clear: Vettel needs to retire at least once, otherwise it's over.
“Ferrari has got a momentum going. If it stays like this the gap will become huge – alarming.”
Hamilton's Monaco weekend was the second time in three races that he and Mercedes have struggled significantly on ultra-soft tyres, with the Briton also having finished fourth in Russia.
Mercedes has identified that as its key weakness to address, with the upcoming grands prix in Canada and Azerbaijan likely to be similar to Monaco.
“Of course I can't afford another weekend like this,” said Hamilton about the prospect of becoming world champion with a repeat of his Monaco struggles.
“At the current rate, where Ferraris are quick, of course not.
“There's no point dwelling on the fact that you cannot afford it.
“You just work towards trying to rectify whatever issues you've had and hope that you don't come across it again.
“It's not like we came to Monaco unprepared, it's just things didn't get off right to us, and the car was in a really different place than we've really ever had it before.”
Hamilton expects a tough time in the remaining 14 races but highlighted the likelihood Vettel and Kimi Raikkonen will encounter grid penalties for exceeding their engine allocations.
Vettel is set for at least a 10-place grid penalty as he has already used up his allocation of turbochargers and is also on his third MGU-H out of four.
Raikkonen, meanwhile, is on his third turbocharger, two changes away from a grid penalty.
In contrast, Hamilton and Bottas having used two of each component after six races.
“Ferrari seems to work everywhere,” said Hamilton. “These next 14 races will be very, very difficult.
“They've had probably the strongest car all year, a bit like our car last year where it just worked everywhere.
“This car currently is not working every single race we go to but the more races we do, the more we learn and the stronger we get.
“We know that the Ferraris are not bulletproof, they've got things potentially coming up, all the totals they've used or potentially used, so we'll see.”
The Formula 1 season continues with Round 7 in Canada from June 9-11.