The Ministry of Defence has reached a budget deal which will see a cut in the number of its civilian staff, the chancellor has said.
But George Osborne told the BBC there would "not be a reduction in our military capability".
The announcement comes three days before the spending review for 2015-16, with Mr Osborne saying the economy was out of "intensive care".
But Labour said the coalition had left the country in a "mess".
Mr Osborne will outline £11.5bn of Whitehall cuts when he delivers his spending review, but is expected to announce investment in infrastructure projects, including roads, railways, education and science.
'Tough choice'Speaking on BBC One's Andrew Marr Show, he said: "I've settled with the defence department. Many people thought that was going to be one of the biggest challenges."
He added that he and Defence Secretary Philip Hammond had come to agree on a "tough choice".
Mr Osborne said: "The civilian [MoD staff] head count is going to be reduced. There will not be a reduction in military capability."
This comes on top of previous reductions in military and civilian staffing, as the government attempts to reduce the budget deficit.
But Mr Osborne also announced that £10m a year would be made available to help veterans injured in recent campaigns and their families.
This would come from fines imposed for the Libor bank interest rate-fixing scandal.
The chancellor said he had not reached a budget deal with Business Secretary Vince Cable for his department, but added that he was "confident we are going to do this in short order".
Amid the cuts, spending on health, schools and overseas aid have been ring-fenced.
Asked if this meant too big a squeeze on other areas of government spending, Mr Osborne said: "They are called ring-fenced, but they are really are the public's priorities."
Mr Osborne said: "I'm confident we are coming out of intensive care and we can turn this country around. There's certainly a chance of a relapse if we abandon our plan."
Shadow chancellor Ed Balls said the government should do more to boost the economy to avoid the need to make cuts.
Mr Balls told BBC One's Andrew Marr Show he was expecting to "inherit a big deficit" after the next general election in 2015.
And he urged the coalition to spend an extra £10bn on infrastructure projects before then, adding: "I fear we could be in for a difficult few years."
Labour leader Ed Miliband has announced that he would not be able to afford to reverse Mr Osborne's cuts should his party come to power at the next election in 2015.
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