His comments came as the Brazilian real plunged to a record low against the dollar, sparking renewed investor concerns about the country's financial health.
Speaking via a satellite link at a conference in Paris, Mr Soros argued that a speculative bubble was developing in Western financial markets.
The flood of funds from the emerging markets to the developed economies had led to high stock market valuations in the US and Europe, according to Mr Soros. "I see the development of an asset bubble as the next major threat to the system", he said.
The billionaire financier criticised the reaction of the Brazilian authorities to the country's economic crisis.
"The Brazilian government was badly advised in raising rates after the devaluation of the real," he said.
According to Mr Soros, unless Brazilian interest rates fall rapidly and confidence recovers, a serious recession is inevitable.
However, he added that, in the medium term, Brazil should be able to work through its economic woes.
"If you take a longer term view, two to three years, the situation in Brazil is not as serious as one might think," Mr Soros said.
His comments came as concerns over the physical stock of dollars in Brazil prompted sharp falls in the value of the real.
The real plunged 8.5 per cent to 1.715 to the dollar following reports that Brazilian banks were running short of foreign exchange.
Capital flight from the crisis-hit economy has averaged more than $500m a day so far this year. The central bank - which itself has only limited reserves - has refused to inject liquidity in the system following its decision last week to let the real float freely against the dollar.
"If dollar flows aren't reversed, the dollar supply is just going to dry up," said Odair Abate, an economist at Lloyds Bank.
The sliding real hit sentiment on the Brazilian stock market, where the benchmark Bovespa index fell for the first time in five days.
Even Congress's approval on Wednesday night of a key part of the government's fiscal reform bill could not halt the slide in stock prices. By the early afternoon, the Bovespa was down almost 4 per cent at 7393.05.
Nick Stamenkovic at Bank Austria Creditanstalt Futures said: "The passage of the fiscal reform bill is a step in the right direction but the market is simply running out of patience."
Economists said continued falls in the real could lead to hyper-inflation in Brazil, and might also prompt more states to default on their debt to the federal government.
Currencies elsewhere in Latin America came under pressure amid the renewed Brazilian concerns.
Speaking at a seminar in Tokyo, Barton Biggs, chairman and global strategist of Morgan Stanley Dean Witter Investment Management, said: "The creeping deflation that began in Asia has continued to spread around the world. It has claimed another victim in Brazil. I'm very afraid it's going to claim other victims in Latin America, and the most obvious one is Argentina."