Britain could be required to find more than £4 billion to help the European bailout of the stricken Portuguese economy, the Treasury has confirmed.
Chancellor George Osborne said Lisbon's debt crisis shows why the Government has had to take firm action to tackle the record deficit in Britain's public finances.
However there was anger among Conservative MPs at the prospect that the UK will have to help rescue another member of the eurozone, having already contributed emergency funding to Ireland.
Portugal's prime minister Jose Socrates announced on Wednesday night he is following Ireland and Greece in seeking a European Union bailout - which analysts say could be up to £70 billion - as "the last resort".
The Government argues that Britain is bound to help under an agreement signed by former chancellor Alistair Darling in the dying days of the Labour government, committing all member states to act as guarantors of any emergency funding.
However Eurosceptic Tory backbencher Douglas Carswell questioned claims by current ministers that they had opposed the deal, pointing to a Treasury memorandum suggesting there had been a cross-party agreement.
The Treasury said the UK is not planning to offer bilateral assistance to Portugal, in the way that it did to Ireland. But it confirmed Britain could be required to provide a loan of up to about £4.4 billion - 13.6% of the money remaining in the EU "disasters fund" after it was drawn upon by Ireland - as well as 4.5% of any International Monetary Fund loan.
Addressing the British Chambers of Commerce annual conference in London, Mr Osborne said that the UK could now be in a similar plight to Portugal if the coalition Government had not pushed through its emergency cuts plan.
Shadow chancellor Ed Balls accused Mr Osborne of making the same mistakes as the Portuguese authorities in driving up unemployment and slowing growth by imposing VAT rises and rapid cuts in spending.
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Countries where deficit reduction was proceeding at a more leisurely pace, like the USA, France and Germany, were seeing improved GDP growth, while Britain had joined the likes of Portugal, Greece and Ireland in negative growth, said Mr Balls.
