Nick Clegg admitted the Coalition went too far in cutting large-scale infrastructure spending as the International Monetary Fund warned the UK had to consider an economic Plan B.
The call came just ahead of official figures released later today, which could point to the UK entering its third recession in six years.
The IMF said the Chancellor should reassess his tactics in his Budget in March and slow down the pace of austerity.
But George Osborne rejected the call, insisting the UK would "carry on with the cuts".
However, his staunch stance appeared to be undermined by the Deputy Prime Minister Mr Clegg.
In an interview, the Liberal Democrat leader admitted that the Coalition had not invested enough in large infrastructure projects when it first came to power.
The criticism is a charge that both Labour and the SNP have long levelled against the Coalition.
Mr Clegg said: "If I'm going to be sort of self-critical, there was this reduction in capital spending when we came into the Coalition Government. I think we comforted ourselves at the time that it was actually no more than what Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop in capital investment.
"But I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible."
Earlier, Olivier Blanchard, the chief economist at the IMF, called on the Chancellor to "take stock" and reassess the UK's economic strategy.
"We think that slower fiscal consolidation in some form may well be appropriate," he said.
The organisation warned last year that the Coalition should rethink if the country's finances did not improve.
Figures out this morning on whether the economy contracted in the last three months of last year will show whether the UK is heading for a triple dip recession.
Speaking at the World Economic Forum in Davos, Mr Osborne insisted the Treasury had a "credible debt reduction plan" and would not be turning back.
"We have to carry on with the cuts. We're not about to bring that programme to an end," he said.
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