The chancellor George Osbornetoday dramatically turned up the heat in the spending review by revealing he would slash the benefit budget for the unemployed by a further £4bn, and saying he would go after those who regarded welfare benefits as "a lifestyle choice".

Interviewed today, Osborne said: "People who think it is a lifestyle to sit on out-of-work benefits … that lifestyle choice is going to come to an end. The money will not be there for that lifestyle choice."

Treasury sources indicated they were confident they would secure £4bn in further savings by 2014-15 on top of the £11bn savings set out in the June budget.

The Department of Work and Pensions, however, said no agreement had been struck, or specific figure agreed. Iain Duncan Smith, the work and pensions secretary, has been involved in bitter talks with the Treasury over his potentially costly plan to improve work incentives for those on the dole, and some of his allies were annoyed by Osborne's rhetoric at a sensitive point in complex negotiations.

One source said: "This feels like an effort to get Andy Coulson off the front pages rather than anything to do with welfare reform."

The Treasury said the £4bn extra saving was not dependent on a fall in unemployment, but is an estimate of the number of extra people who will find jobs due to the government's work programme and changes to work incentives.

The benefit savings could be increased if the Treasury presses ahead with proposals to restrict current universal benefits such as the winter fuel allowance, travel passes and TV licences.

The chancellor's plan to cut benefits came as the OECD, the west's leading economic thinktank, warned that G7 countries may have to delay their deficit reduction plans as the pace of economic recovery has slowed.

The benefit proposals, and the manner in which they emerged in Osborne's interview with the BBC's Nick Robinson, also angered leftwing Liberal Democrat MPs Mike Hancock, Tim Farron and Bob Russell. Vowing to vote against such cuts, Hancock said: "This goes right to the heart of the benefit system in this country. He has a lot of questions to answer and this is not the right way to do things."

Russell said: "This is not the way the coalition should work. I think Liberal Democrat MPs need to find out what is being done in our name. He is going around with a sledgehammer."

Farron said: "The government needs to demonstrate that those who got us into this mess are going to more than bear the brunt and that the most in need will not be targeted. We need to scrutinise where the cuts are made."

Osborne's declaration came on the day Nick Clegg had tried to send out a nuanced message that the cuts in the 20 October spending review would not fall in one blow, and would not be "dramatically different" to those proposed by Labour.

Osborne, by contrast, adopted a blunt tone, telling the BBC: "The welfare system is broken. We have to accept that the welfare bill has got completely out of control and that there are five million people living on permanent out-of-work benefits. That is a tragedy for them and fiscally unsustainable for us.

"There will be further welfare cuts amounting to several billions of pounds additional to what I announced in the budget," he promised. "The people of this country understand this choice and they have chosen for us as a government to push further on welfare reform."

During the election campaign David Cameron promised the winter fuel allowance would not be cut, but it is possible that it, and some other universal benefits, could be restricted to those on pension credit, as the Lib Dems advocated. In a speech today Clegg warned that the biggest risk facing the government in next month's spending review is panic, with civil servants slashing budgets across the board.

Six weeks before 25% cuts in departmental budgets are unveiled, the deputy prime minister revealed that the government "was putting a lot of pressure on departments not simply to panic, and do a numerical exercise, but also think about their long-term vocational purpose".

Clegg said he knew the spending review would be very controversial. "More worrisome still, they simply look at the cost of employing people and slash jobs."

He also disclosed that the spending review would provide extra money to introduce a pupil premium for poorer school children. It would include a deal to loosen Treasury controls over local government so "over time there is a rebalancing of the fiscal system," he said.

It is understood that the cabinet agreed this week that spending ministers will be entitled to take their departmental spending cuts programme to the domestic affairs committee of the cabinet to ensure there is full political buy-in into the cuts programme, so ministers collectively agree on highly controversial individual department programmes.

It had previously been thought cabinet ministers would simply strike bilateral deals with the Treasury, or the so-called star chamber.

Clegg's politically-driven need to calm anxieties carries the danger of sending a mixed political message since, to placate the markets, the coalition is also insisting that Labour's deficit reduction programme was totally inadequate.

Clegg argued: "This is a four- to five-year plan. It means for a department that is being asked to have its finances reduced by 25%, it is an annual reduction of about 6%. Under Labour's plans it would have been a 20% reduction so that it would have been 5% every year."

"Our plans are not that dramatically different in some cases from what Labour was planning, and crucially it takes place over time, so I hope that gives everyone in public services and local government time to plan carefully, not to panic, and to take the wrong decisions right at the beginning."

However, Clegg admitted that the public were at present reading their worst fears into the spending review. He admitted: "Of course, there are plenty reasons for people to be anxious, particularly in those parts of the country that are very dependent on the public sector."

Shadow work and pensions secretary Yvette Cooper said: "George Osborne talks about cutting the welfare bill, but their own figures show their policies are cutting jobs and putting more people on to benefits. We know already that the coalition is hitting the poorest carers, pensioners and the most disabled. They urgently need to explain where these extra cuts will fall."