Unemployed Paul Wright, 53, fears he may be forced to camp in nearby woods, despite "serving Queen and country".
WSCC said Mr Wright had been asked to move the caravan after complaints.
If Mr Wright refuses, the council will move it and keep it in a safe compound for a certain time, after which it will be dismantled, a WSCC spokesman said.
Mr Wright said he was in the Parachute Regiment for nine years, which included two tours of Northern Ireland.
"When I was in the Army quite often we lived rough because of the jobs that we did, but it still doesn't excuse the fact that a man should have to live like this after serving Queen and country," he said.
"They're not looking after the people that have looked after them. There's an awful lot of ex-servicemen in awful situations, it's not just me."
He said he had been told the caravan would be removed from the lay-by on the A259 in five days.
"The council have told me they can't offer any accommodation - the only place I can sleep is in the lay-by in the trees," he said.
But on Friday, WSCC said Chichester District Council was helping Mr Wright to find alternative accommodation.
The spokesman said: "We understand Mr Wright is in a difficult position, but we have had to take action in this case following complaints.
"We have been working with the district councils to assist him.
"The issue is subject to ongoing court proceedings therefore we are unable to comment further."
A former soldier has said he will be left homeless if West Sussex County Council (WSCC) removes his caravan from a lay-by near Chichester.