Ferenc Gyurcsany apologised on Wednesday for a speech at a party meeting in April, leaked to the media earlier this month leading to violent protests in Budapest, in which he said the government had lied about the state of the economy in order to win re-election.
"Of course I am sorry ... these were the words of reproof, affection and passion," Gyurcsany told a press conference after a cabinet meeting.
Gyurcsany said he recognised he had lost the people's trust and it would take a long time to regain their confidence, but he said plans to cut the budget deficit, which is running at 10.1 per cent of gross domestic product, must be implemented.
Since winning the election, the government has performed a U-turn on economic policy and introduced hefty tax rises and subsidy cuts to rein in the biggest deficit in the European Union.
"I did not believe that voters would understand ... In a sense I did not believe in myself either, that I would be able to tell all this," he said.
As a result of the deficit reduction measures, government popularity has plunged to 25 per cent from about 40 per cent in April, and it faces a crucial test in local elections on Sunday.
But Gyurcsany did receive a boost on Tuesday when the European Commission approved his government's economic austerity measures.
The austerity package, directed at reining in the public deficit, is part of the country's so-called convergence plan to meet eurozone by 2009 and adopt the euro between 2011 and 2013.
"Of course I am sorry... these were the words of reproof, affection and passion"
prime minister of Hungary
The main opposition Fidesz party is portraying Sunday's vote as a referendum on the tax rises and subsidy cuts.
Fidesz has termed the government "illegitimate" and demanded that it resign to be replaced by a government of experts until new elections are held.
Under Hungary's constitution, there is no means of changing the government outside an election unless it resigns or loses four no-confidence votes, and the Socialists and Free Democrats have stood firmly behind Gyurcsany.
The number of protesters outside parliament had dwindled to about 100, mostly from fringe far right groups, by Wednesday morning from a peak of tens of thousands in the week after the leak of the tape on September 17.