The multi-billion-pound NHS IT programme is to be dramatically scaled back in the Pre-Budget Report.
Alistair Darling will announce on Wednesday that part of the National Programme for IT (NPfIT) will be shelved as he seeks to slash public spending to get borrowing back under control.
The budget for the National Programme for IT, which has been beset by delays and heavily criticised by opposition parties, has spiralled to more than £12 billion.
However, the Chancellor is expected to target one aspect of the programme which he does not deem essential to the NHS frontline. Savings are only likely to run to the hundreds of millions.
Mr Darling indicated that the IT programme was in the firing line when he came under pressure today to flesh out plans for public spending cuts.
"I do think it is necessary for me on Wednesday to indicate you know areas where we are going to cut spending or where we're not going to spend as much as we were," he told the Andrew Marr Show on BBC1.
"You know, for example, the NHS had a quite expensive IT system that you know, frankly, isn't essential to the frontline.
"It's something that I think we don't need to go ahead with just now."
Treasury officials stressed later that only part of the IT programme was on the line and it would not be scrapped altogether.
But the Tories, who would scrap the programme's centralised IT system, seized on the Chancellor's remarks, pointing out that billions of pounds had already been spent on the scheme.
Shadow health secretary Andrew Lansley said: "After seven years Labour have finally acknowledged what we've said for years, that the procurement for NHS IT was costing billions and not delivering.
"The opportunity cost to the NHS also measures billions of pounds.
"This is another government IT procurement disaster, it just shows you can't trust Labour on spending efficiency."
The NPfIT would computerise medical records in a central database and link up more than 30,000 GPs to nearly 300 hospitals.
It would provide an online booking system, a centralised medical records system, e-prescriptions and fast computer network links between NHS organisations.
A Treasury spokesman said: "The Secretary of State for Health is going to set out the details later this week."