Much-needed reforms to the welfare system are being "derailed" by another cabinet row, it has been claimed.
Mr Blunkett is reported to have clashed with the prime minister
A reported clash between Tony Blair and David Blunkett indicates a "continuing drift" over reforms, say the Lib Dems.
There are reports that Mr Blair thinks plans, including means-testing and putting a time limit on benefit payments, do not go far enough.
Stories of cabinet rows over education and smoking have led to speculation that Mr Blair's authority is waning.
Work and Pensions Secretary Mr Blunkett is reported to have written to the prime minister on Friday saying he could not accept last minute changes to his benefit reforms.
He is also fighting off calls for an inquiry into claims he broke ministerial rules over his directorship of a DNA testing firm when between cabinet posts.
The Liberal Democrat's work and pensions spokesman David Laws said that Mr Blunkett was "weakened and distracted" while Mr Blair was making up incapacity benefit policies "on the back of a fag packet".
"At present Mr Blunkett seems to be spending more time defending his private life than developing a coherent agenda for welfare reform."
He added: "Meanwhile the Child Support Agency is in chaos, there is no clear sense of direction on pensions reform, and now we hear that there is a growing dispute between Mr Blair and Mr Blunkett over reform of incapacity benefit."
Speaking on ITV 1's Jonathan Dimbleby programme, Cabinet Office Minister John Hutton dismissed reports of Cabinet splits as largely "tittle tattle", but added: "Of course, there are arguments".
Meanwhile Defence Secretary John Reid told the BBC the rows were a sign that the government is not afraid to tackle controversial issues and would not back down from a "radical agenda".