Gordon Brown said cutting the deficit immediately "would be a mistake"
Gordon Brown has said he was right to run up a record budget deficit because it had protected jobs and businesses.
The prime minister told a committee of senior MPs that allowing borrowing to rise was "essential" to the recovery.
And he said cutting the deficit this year would have an impact on the economy, with more businesses going under, repossessions and job losses.
Shadow chancellor George Osborne said Labour's plan to reduce the deficit was "not regarded as credible".
That point was put to Mr Brown when he appeared before the liaison committee - made up of the senior MPs who chair the Commons' select committees - for the last time before the general election, widely expected in May.
The deficit - the difference between the amount the government spends and the amount it gets from sources like tax - is expected to grow to £178bn this year and is set to be one of the key battleground issues in the coming general election.
The prime minister said: "I think it is right to have run a large deficit. I think it has been essential for us to have the recovery that is necessary for the economy.
"We have managed as a result of that, in the face of the biggest financial crisis the world has seen for 70 years, to maintain far lower levels of unemployment than we would otherwise have been able to achieve, saved businesses that might otherwise have failed and kept people from having their homes repossessed."
Borrowing from China so that we can buy the goods they make for us may be Gordon Brown's idea of our future but it is not the Conservative Party's
George Osborne Shadow chancellor
He added: "Yes, it is a high level of deficit, but we have got the advantage of having started from a low level of debt, which meant we were flexible enough to be able to afford a deficit."
He said the chancellor's forecast of a return to 3.5% GDP growth in 2011 was not "over-optimistic" and said the government had a clear plan to halve the deficit.
In a speech at the British Museum earlier, shadow chancellor George Osborne said he wanted a "more solid" economy for Britain, built on savings, enterprise and exports.
He said the economy under Gordon Brown was "severely unbalanced" and growth driven by "public and private debt".
Mr Osborne said the Tories would seek to protect Britain's credit rating and "eliminate a large part" of the £178bn budget deficit over the next Parliament - which he said went further than Labour's pledge to halve it in four years.
He said the pace of "fiscal tightening" had to be done in co-ordination with the Bank of England and said Labour's plans to halve the deficit in four years was "not regarded as credible".
Mr Osborne said the "old" economic model was built on "shaky foundations" of a public spending boom, an "overblown" banking sector, and consumer borrowing based on a house price "bubble" - and said new sources of growth were needed.
He said: "Borrowing from China so that we can buy the goods they make for us may be Gordon Brown's idea of our future but it is not the Conservative Party's. We want Britain to be selling to China and the rest of the world."
He said new sources of growth were needed, supported by a competitive tax system and new infrastructure - like high speed rail and broadband.
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