Chancellor Philip Hammond is at the centre of a new Cabinet storm amid a report he told ministers that public sector workers were "overpaid".
Mr Hammond made his comment at Tuesday’s weekly meeting of the Cabinet, according to The Sunday Times.
The Treasury denied he had used the words attributed to him by the newspaper.
The report had quoted a cabinet source saying: "Philip used a fairly inflammatory phrase. He said they were ‘overpaid’.
"That caused some general astonishment. His overall tone was that we shouldn’t give them more cash because they are overpaid.
"Later in the meeting both Boris Johnson and the PM said we should not say public sector workers are overpaid."
It added that five sources had attested to the Chancellor using the word.
The allegations came at a sensitive moment for the Government with ministers under increasing pressure to lift the 1% public sector pay cap.
It prompted speculation that Mr Hammond was the victim of a briefing war as ministers jockeyed for position to succeed Theresa May.
It came just 24 hours after a report in The Sun claimed the Chancellor told the same meeting that driving a train was now so easy "even" a woman could do it.
According to The Sunday Times, Mr Hammond said public sector workers were "overpaid" when their pensions were taken into account and that train drivers were "ludicrously overpaid".
A Treasury source said: "The Chancellor was describing the public sector pension premium. He did not say that public sector workers were overpaid."
Mr Hammond has angered hardline Brexiteers in the Cabinet – including Foreign Secretary Boris Johnson – by arguing for a deal which prioritises jobs and economic growth over controlling immigration.
He has also warned of the need for a lengthy transitional period after Britain leaves the EU to prevent business falling off a "cliff edge" – seen by some hardliners as an attempt to reverse last year’s referendum vote by stealth.
The latest claims came as The Mail on Sunday reported that supporters of Brexit Secretary David Davis were hoping to enlist Mr Hammond’s backing to help see off Mr Johnson in the event of a leadership contest.