Osborne announced the new scheme Help to Work, which he said was designed to tackle long-term unemployment, at a Conservative Party conference in Manchester, Xinhua reported.
"For the first time, people in long-term unemployment who are capable of work will be asked to work in return for their benefits," he said.
According to the new policy, those who have been unemployed for three years or more will be asked to take part in community work placements, such as clearing up litter and graffiti in their local areas, and attending daily signings at the job centre until they find work.
The new policy will come into effect from April 2014.
People who break the rules once will lose four weeks' benefits worth about 230 pounds, while a second infringement could cost them three months, officials said.
The scheme is reported as a new attempt made by the Conservative-led government to reform the benefits system, which Prime Minister David Cameron says does not provide enough incentives for people to go out to work.
Under a new slogan at the conference -- "For Hardworking People' -- the finance minister said he sought to end the "something for nothing" culture in the country.
According to the latest official figures, British unemployment rate dropped to 7.7 percent in the three months ending July, with the number of unemployed people at 2.49 million.
--IANS (Posted on 30-09-2013)