Ratings agency S&P said national debt could rise to 100% of output by 2013, leading to the UK losing its coveted triple A status.
It is the first time the nation's top credit rating has come under threat since S&P began assessing the UK's sovereign debt in 1978.
Lib Dem Treasury spokesman Vince Cable added: "Until the Government comes clean about how it intends to pay back its debt, it is perfectly possible that we will see a further deterioration in Britain's rating."
S&P is holding its rating for now, but lowered its outlook to "negative" due to worries over how long it could take to repair the deteriorating public finances.
The warning came as official figures showed net borrowing surging to a worse-than-expected £8.5 bn in April - more than 4X higher than 2008 - as tax receipts dive and spending rises.
Chancellor Alistair Darling expects to borrow a record £175 bn this year, with debt as a share of GDP peaking at 79% in 2013/14.
Ireland and Spain have already lost their 3A status this year.