Mr Cable called for an urgent rethink for plans to provide government guarantees for low-deposit mortgages from next January amid signs that "serious housing inflationary pressures" were already developing in parts of the country.
"We should certainly think about how it should come into effect, indeed whether it should come into effect, in the light of changing market conditions. We don't want a new housing bubble," Mr Cable told Sky News.
"In many parts of the country it clearly isn't a problem. If you are in Northern Ireland or Wales or indeed the East Midlands you would wonder what all this is about," he said.
"But certainly in London and the South East, in the north east of Scotland, in other areas, there are serious housing inflationary pressures."
But he was immediately slapped down by the Prime Minister's official spokesman who insisted that the scheme - which was the centrepiece of Mr Osborne's Budget last March - would go ahead as planned.
"We are faced with a situation - because of the fall in availability of 90 to 95% loan-to-value mortgages - where many first-time buyers are faced with a real obstacle to making a home of their own.
"It is important we address this issue."
Mr Cable's latest clash with Mr Osborne comes as the parties gear up for the annual conference season, with the Liberal Democrats keen to put some distance between themselves and their Conservative coalition partners.
The Business Secretary did however tone down a keynote speech, dropping a warning of the dangers of "complacency" over the economy, just two days after Mr Osborne declared that it was finally "turning a corner".
Addressing business leaders at a joint Government/CBI industrial strategy conference in Warwick, he nevertheless made clear that the recovery was not yet assured and that further government action was needed to address the skills shortage and boost exports.
"The kind of growth we want won't simply emerge of its own volition. In fact, I see a number of dangers. One is letting up just because we have had a few quarters of good economic data," he said.
"Recovery will not be fully established until we see strong and sustained business investment."
Interviewed on BBC Radio 4's Today programme, Mr Cable insisted he supported Mr Osborne's comments about the recovery but said the economy remained in a "long, dark tunnel".
"The reactions to the news over the last few weeks somehow suggest that we are out of this long, dark tunnel," Mr Cable said.
"I don't want the public debate about this to become obsessive about a few weeks' data, when what really matters is the long-term change we're trying to achieve, getting Britain more outward looking, avoiding a return to the boom-bust psychology.
"The point I am trying to make is that this is a long-term haul. We have got a marathon not a sprint here."
Labour housing spokesman Jack Dromey said: "Help for first-time buyers struggling to get on the property ladder is welcome. But David Cameron has presided over a lower level of homes built than any other prime minister in peacetime since the 1920s.
"This out of touch Government's failure to build the affordable homes the country needs means there is real concern that this scheme will do little to bring the cost of housing within the reach of low and middle income earners."