Economy minister Vaughan Gething says Wales could be independent but would be "automatically poorer" - warning UK Government's attempt to take back spending powers risked pushing more people towards independence.
Mr Gething was appearing the Welsh Affairs committee to discuss the UK Government's Levelling-up and Community Renewal funding.
These will replace EU funds - previously distributed by the Welsh Government in Wales - with the accusation UK Government is stealing back powers that have been devolved as a result of two referendums.
Committee chairman MP Stephen Crabb asked whether these funds would help enhance the role of local government and strengthen the union and if Mr Gething would describe himself as a "unionist".
Mr Gething said: "I believe in the future of the union, a reformed union could and should deliver for Wales and the whole of the UK.
"I'm not someone who is instantly attracted to independence. Wales could be an independent country but I think we'd automatically be a poorer country.
"Part of the challenge is 'are you in politics for a constitutional future or are you in politics to make a difference with and for people's lives'? Social justice is what drove me into politics and I think the devolved settlement can help to deliver social justice but I don't think that the current approach of the UK Government is actually going to achieve that.
"I am concerned it certainly will drive more and more people to looking again at arguments over independence."
He warned the approach of going direct to local authorities with the funds would create confrontation and confusion rather than a focus on both governments working together.
He added: "This is a very direct and obvious encroachment on devolved competence and influence.
"That almost appears to be an objective which I just think is unnecessarily confrontational.
"For those of us who believe in the future of the union it is really unhelpful."
