"The overall scale of the problem is even worse than we thought," he said.
"Its potential consequences are therefore more critical than we feared".
Cameron heads Britain's first coalition government since 1945, his centre-right party having teamed up with the smaller Liberal Democrats after last month's election.
Flanked by Danny Alexander, the Liberal Democrat treasury minister, Cameron said the coalition would make it easier to win over the public, saying there were "two parties together facing up to the British people".
Speaking to Al Jazeera, David Buik, a senior market analyst from BGC Partners, an international brokers, said that the fact that the UK had a coalition government would help Cameron make the cuts the prime minister felt were necessary.
Buik said: "This is the greatest chance we've had in 100 years because every single government, regardless of political persuasion, has abrogated the responsibility of dealing with the civil service and also with public expenditure.
"They've [previous governments] given it the biggest body swerve imaginable because it's an election loser, now there's a chance of addressing that problem."
Buik said that the private sector also had to help out with the process.
He said: "These cuts [are] obviously going to incur, whether any government or party want to admit it, at least 200,000, maybe 300,000 job losses, during the course of the next three years.
"[The government needs] to stimulate the private sector so that they're in a mood to employ people and get growth going."
Cameron also attacked the previous Labour government for economic mistakes over the past decade that he said had left the legacy of a debt crisis, and said the country must heed the crisis facing Greece.
"Greece stands as a warning of what happens to countries that lose their credibility, or whose governments pretend that difficult decisions can somehow be avoided," he said.
The prime minister said the public sector had grown too large under Labour and that if no action were taken, within five years its debt-servicing costs would be more than it spends on schools in England, climate change and transport combined.
His comments come as ministers prepare the ground for an emergency budget on June 22 in which George Osborne, the country's finance minister, will try to make serious inroads into the deficit.
The government is desperate to persuade people of the need for what they call the "difficult decisions" they are set to take and Cameron announced a public consultation on its plans.
The coalition has already laid out plans to trim $9bn in costs this year in order to start to reduce the deficit.
The Labour party has warned that the proposed cuts risk killing off a fragile economic recovery and throwing the UK into a double-dip recession.