The Defence Secretary has told George Osborne the military cannot cope with any more cuts - so the welfare budget should be slashed instead.
Philip Hammond has warned he will resist further cuts to his department in the next spending review.
In an interview with the Daily Telegraph, the minister said a further budget squeeze would mean expensive equipment could not be used.
Despite Downing Street warning publicly that the military would not be immune from further cuts, Hammond made clear that he would resist anything more than modest "efficiency savings".
His comments reinforce repports of a 'National Union of Ministers' within Cabinet, determined to resist more painful reductions to their budgets.
Hammond said other Conservative Cabinet ministers believed that the greatest burden of any cuts should fall on the welfare budget.
There was, he said, a "body of opinion within Cabinet who believes that we have to look at the welfare budget again", and that "we should be seeing welfare spending falling" as a result of rising employment levels.
He said the "first priority" for the government should be "defending the country and maintaining law and order" and that further defence cuts were not possible while meeting stated security objectives.
"I shall go into the spending review fighting the case for the defence budget on the basis that we have made very large cuts to defence, we've done that with the collaboration and co-operation of the military," he said.
"Any further reduction in the defence budget would fall on the level of activity that we were able to carry out - the idea that expensively bought equipment may not be able to be used, expensively employed troops may not be able to be exercised and trained as regularly as they need to be.
"I am not going into the spending review offering any further reductions in personnel."
His comments comments are likely to be welcomed by Tory backbenchers who have been calling for a return to a core Conservative values in the wake of the party's trouncing in the Eastleigh by-election.
However they will also heighten tensions within the coalition, with the Liberal Democrats resisting a further squeeze on welfare spending.
It was being made clear Hammond's comments were aimed particularly at the Lib Dems following remarks by senior Lib Dem ministers indicating that they believed welfare spending should be protected over defence.
A Whitehall source said: "There is a real concern that the Lib Dems wants to protect the benefits culture at the expense of the armed forces".
Former Chief of the Air Staff, Sir Michael Graydon, agreed with Hammond.
He told BBC Radio 5: "We have great capability gaps now, which we never had before. For example, we have no maritime patrol aircraft at all, we have no aircraft that can go on carriers - in fact we barely have carriers any longer.
"The army is now at a level, or will be shortly, it has never been that low for 200 years. That must surely worry people."