Liberal Democrat Business Secretary Vince Cable said the Help to Buy scheme could trigger another housing bubble, including in parts of Scotland.
But Downing Street rejected the criticism last night insisting that the scheme, announced by Chancellor George Osborne in this year's Budget, would go ahead from January.
Mr Cable called for an urgent rethink of the plans amid signs of "serious housing inflationary pressures".
"We should certainly think about how it should come into effect, indeed whether it should come into effect, in the light of changing market conditions. We don't want a new housing bubble," he said.
"In many parts of the country it clearly isn't a problem. If you are in Northern Ireland or Wales or indeed the East Midlands you would wonder what all this is about. But certainly in London and the South East, in the north east of Scotland, in other areas, there are serious housing inflationary pressures."
But he was immediately slapped down by No 10.
The Prime Minister's official spokesman said: "It will be launched. We are faced with a situation - because of the fall in availability of 90 to 95% loan-to-value mortgages - where many first-time buyers are faced with a real obstacle to making a home of their own. It is important we address this issue."
The tension between Mr Cable and Mr Osborne comes as the parties gear up for conference season. The LibDems are keen to put political distance between themselves and their Tory coalition partners.