Lawwell revealed his fears for the future after the club's annual general meeting at Celtic Park, where outgoing chairman John Reid told shareholders that he now questioned the sustainability of the game and claimed "radical thinking" was needed to address the problem.
Lawwell spoke about being unable to compete with the "ridiculous" fees being bandied around in England and further afield for players and highlighted the age-old issue of the lack of finance north of the border, due mostly to poor television revenues.
"It's not Celtic and Rangers here, it's the nation," he said. "This social phenomenon of football in Scotland is under threat of extinction and it needs, as John (Reid) says, radical thinking.
"A lot of good work is going on at the SFA, a lot of good work is going on at the SPL, but is it enough?
"The challenges are obvious to everyone here. The product here in Scotland isn't the best. There's a chronic lack of investment in the game.
"The reason is that people don't see the worth of the payback, and until that's sorted we're going to have real problems."
Lawwell added: "Man United have 300million supporters around the world, while 1.4billion watch the EPL.
"The English Premier League now gets £1.4billion a year through TV. The new SPL deal, including international rights, will be worth £15million, 1 per cent of the EPL deal.
"What follows from that is profile, exposure, sponsorship values - that's what we're up against.
"So what we need to do is to provide an environment that will provide fresh investment into the game, bring hope and aspiration back into the game and take off.
"We're going one way in a Scottish context. As a club we have a duty and a responsibility to prevent that.
"It's nothing imminent, it's long term. There'll be TV deals for the SPL, there's a TV deal for the Scottish national team. They'll still go on, but whether it grows is another thing.
"The strong will get stronger and the weak will get weaker."
Asked if the type of growth needed was possible in the SPL, Lawwell replied: "It's very, very difficult to see unless there is a route out in terms of to a bigger environment, to an extended European environment.
"The European Club Association was a forum to discuss these matters. They have been raised but the frank answer is that they were getting nowhere fast.
"What you find is the polarisation of European football - between leagues and within leagues - and at some point there will be a breaking point.
"That eliminates competition, the lifeblood of sport, and we need to rekindle that somewhere."
Reid, who has been replaced by Ian Bankier, was similarly pessimistic.
"From where I am sitting, we have an unsustainable model for Scottish football," said the former Home Secretary, who confirmed the club were exploring the possibility of a safe-standing area at Celtic Park.
"And in its crudest terms, you cannot go on earning one or two per cent of what other countries' clubs are earning and in any way meet the expectations that our history would determine.
"We are a big club with an international following, with a huge potential market, but like many other clubs we are locked into a league that has no commercial value, or very little, in a world where it is the commercial value of that money that is determining performance on the park.
"What's new about that? The extent is new and I think the hardness of finding solutions is new because every year the problem gets worse.
"The example I've given folk is that when we played Manchester United a couple of years ago we drew 1-1 here and were well beaten down there.
"We were playing a team who in the previous five years had something of the order of £300-£400million more than us to spend on players. And that's the reality.
"It's going to get harder and harder. Then your coefficient goes down, so the hurdles you have to jump get harder and harder.
"But I don't have a solution to it for one or all of the clubs."
During the AGM some fans questioned the emotional and financial commitment of majority shareholder Dermot Desmond, who was again absent from the top table, but Lawwell insists the wealthy Irish businessman is the wrong target.
"I can understand it to the extent that we are haven't won the league for three years and we're 10 points behind (Rangers)," he said.
"Our supporters, our shareholders are looking for somebody to blame. It's the blame game. They're blaming the wrong guy.
"Dermot Desmond has been a fantastic major shareholder for Celtic. He's put in excess of £50million into Celtic.
"He is genuinely interested and genuinely hurts when we lose. He's on to me continually, he's on to Neil Lennon continually in the right manner, without interfering. He is a fantastic owner.
"He understands Celtic, he understands the ethos, the philosophies, the traditions, and that is a fantastic custodian to have for our supporters."