WASHINGTON—The bipartisan deficit-reduction talks led by Vice President Joe Biden grew more contentious Wednesday as Democrats and Republicans became increasingly entrenched on key issues, people familiar with the matter said.

Republicans are staunchly opposed to raising taxes, something Democrats believe must be part of any deficit-reduction plan. Many Democrats, meanwhile, oppose certain changes to entitlement programs like Medicare, but Republicans say these are the biggest drivers of the deficit and must be tackled.

President Barack Obama plans to meet with top House Democrats Thursday about the talks.

One question negotiators face is how quickly to implement spending cuts or tax increases that might be part of any plan. Separate warnings that U.S. policy makers could hurt the weak American economic recovery if they adopted immediate federal spending cuts came Wednesday from Federal Reserve Chairman Ben Bernanke, in a news conference, and the Congressional Budget Office, in a new report.

Some described the tension between the budget negotiators as expected, given they're working through some of the most controversial issues involved, and talks are due to wrap up soon. Others said the intensifying differences are adding complexity to the talks and portend difficult discussions ahead.

The Biden talks seek to clear the way for lawmakers to vote to raise the $14.29 trillion federal borrowing limit by Aug. 2. Treasury Department officials say that is when the government will run out of cash to pay its bills if the debt cap isn't lifted.

Vice President Joe Biden Getty Images

Many Republicans have said they wouldn't vote to raise the debt ceiling under any circumstances, and numerous lawmakers have said they would only vote to raise the ceiling if a deficit-reduction plan is in place.

If negotiators hit a wall and talks appear to be faltering in the coming weeks, investors could begin to question whether the debt ceiling will be raised in time—which could lead to market turbulence.

Both sides plan to continue talking Thursday. The White House and congressional Republicans have locked horns before in spending talks and found a way to reconcile differences at the last minute, such as when they worked out a deal several months ago to continue funding the federal government's operations.

The hardening disagreements have been telegraphed for weeks in public statements, but became more entrenched than some expected during the private talks in recent days.

Since early May, Mr. Biden has led a group of administration officials and lawmakers through roughly a dozen meetings to lay the groundwork for a final deal. The group has been careful not to leak details of the talks, worried that could lead to the discussions imploding. They planned on handing off their work soon to a more senior group of negotiators, likely led by Mr. Obama and House Speaker John Boehner (R., Ohio).

One unresolved issue is the size of the deficit-reduction package that negotiators will aim for. White House officials, including Office of Management and Budget Director Jacob Lew and Treasury Secretary Timothy Geithner, have said a deficit-reduction plan should reduce the projected budget deficit by $4 trillion to $5 trillion over 10 years, but they say the deal must include certain tax increases paired with spending cuts.

Republicans have said they will insist on a dollar in deficit reduction for every dollar that the debt ceiling is raised. Many analysts believe this means there will have to be a $2 trillion to $2.5 trillion package, as that is roughly the amount of money in additional borrowing the Treasury Department will need to carry it past the 2012 elections.

The CBO, which is Congress's nonpartisan research arm, said in its report that the large U.S. budget deficits being debated in Washington would "probably decline markedly" over the next several years as the economy recovers and government measures to stimulate growth—such as temporary tax breaks and spending programs—run out.

But it projected long-term deficits expanding rapidly beyond that as a result of the rising costs of Medicare and other government health programs as the U.S. population ages. "The budget outlook, for both the coming decade and beyond, is daunting," it said.

—Luca DiLeo and Michael R. Crittenden contributed to this article.

Write to Damian Paletta at damian.paletta@wsj.com