Margaret Thatcher "could only have dreamt of" the coalition's spending cuts, the climate change minister is reported to have said.
Speaking in South Carolina, Gregory Barker was quoted as saying: "We are making cuts that Margaret Thatcher in the 1980s could only have dreamt of."
The comments, quoted in a local college website, triggered an instant reaction from Labour.
Angela Eagle MP, shadow chief secretary to the Treasury, said the Mr Barker had "let the cat out of the bag".
"Greg Barker has let the cat out the bag about the ideological agenda behind this Tory-led government's deep cuts to public services," she said.
"But while Conservatives might dream about deep cuts, for millions of families it's more like a nightmare.
"From this week millions will see cuts to their tax credits and childcare support as well as cuts to services they rely on like children's centres and libraries."
Mr Barker said he was making a comparison between the tough economic times of the 1980s and the state of public finances at the end of the last Labour government.
"I was making the point that thanks to the mess we inherited from Labour, we are having to make very difficult decisions, much tougher than would have been imagined in the 1980s," he said.
"Even Alistair Darling himself admitted that Labour overspending meant that they would have been forced to make tougher and deeper cuts than Margaret Thatcher.
"The fact is that if we don't take steps now to live within our means we'll end up paying higher taxes or making deeper spending cuts just to pay off our debt."
Mr Barker's comments come only a few days after Cabinet Office minister Oliver Letwin appeared to reveal government fears over the state of the economy to a Commons committee.
Mr Letwin told the environmental audit committee there had been "an immediate national crisis in the form of less growth and jobs than we needed" that prompted the Budget's growth agenda.