George Osborne said it was senior Downing Street civil servant Jeremy Heywood's suggestion to hand responsibility for judging News Corporation's bid for BSkyB to Jeremy Hunt after it was decided Vince Cable had to be stripped of the job.
Giving evidence to the Leveson inquiry on Monday, the chancellor dismissed claims there was some "vast conspiracy" hatched prior to the 2010 general election between the Conservative Party and News Corporation to allow it to take control of the broadcaster.
In December 2010 Cable was secretly recorded saying he had "declared war" on Rupert Murdoch while he was supposed to be an impartial judge of the bid.
Responsibility was then handed to culture secretary Hunt, who had previously expressed support for News Corporation's bid.
Osborne said the decision to put Hunt in charge was made at a 4pm meeting on 21 December with David Cameron at Downing Street following the "neat Whitehall solution" suggestion by Heywood.
The chancellor said he was looking for a solution that did not involve Cable having to resign as it would have triggered a wider Cabinet reshuffle that would have threatened the unity of the coalition in it first year.
"I thought Dr Cable was doing a good job as business secretary, other than what he had said about the Murdochs," he said.
"I was looking for solutions that did not involve Dr Cable resigning."
Osborne dismissed as "complete nonsense" claims made by Gordon Brown earlier in the day that the Conservatives knew before the election News Corporation planned to bid for BSkyB and had set in motion a plan to let them take it over.
He said that only a "real fantasist" could think the "political storm" that erupted following Cable's comments could have been orchestrated.
Osborne also told Leveson that he was an "external observer" of the bid process from within government and saw it as simply a "political inconvenience" that he would rather was not happening.
"It was either going to offend a group of newspapers who we wanted to have good relations with if it was accepted, and if it was rejected it was going to offend another bunch of people," he said. "I think that judgement has been borne out by events."
"I regarded the whole thing as political inconvenience and something we had to deal with, and the best way to deal with it was to stick with the process."