Watts said: "Previously, the government had the good sense of wanting CABE to be run by people from the industry. It seems to me it has backtracked from that. It is weakness on the government's part."
A report commissioned by the government, which prompted Lipton to stand down last week, decreed that any CABE chairman or head of design review panel should not have "significant commercial interests" in the work of the commission.
Watts warned CABE was in danger of being run by public officials who would not have Lipton's impact. "It could return to the days when it was run by worthy people, almost like the Royal Fine Art Commission, which wasn't much use."
Watts added: "CABE under Sir Stuart Lipton has done more to improve the quality and value of public sector buildings in five years than anybody has ever done."
Some commissioners have reacted to the government report with scepticism. One said: "When you're dealing at a professional level you need to be heavily involved in that industry. There is inherently a conflict of interest."
A spokesperson for the Department for Culture, Media and Sport, which part-funds CABE, said government would seek assurances from the quango that the report's suggestions would be acted on.
He said: "We expect selection of the people on the design review panel to be a high priority of the new chief executive."
It is expected that CABE will have to prove transparency in recruitment and fairness in design review.
The report also hinted that the body's design review process will no longer be run by one person, after it found the potential for conflict of interest since the interim appointment of Ken Shuttleworth on 1 April.
The report said that the appointment of a "practising architect" in place of the previous incumbent, journalist Paul Finch, meant potential conflicts of interest were more likely.