The long-term unemployed will have to earn their benefits by doing full-time unpaid community work from next year.
From April, people still without work after two years on the coalition's Work Programme will face three options if they want to remain on the dole.
They will have to do community work such as litter picking, visit a job centre every day or take part in compulsory training to tackle problems like illiteracy.
Those who break the rules of the new Help to Work scheme, for example by failing to turn up without a good reason, could lose their benefit for four weeks.
A second offence would see them lose it for three months.
The Chancellor wants the jobless to earn their benefits Chancellor George Osborne will unveil the tough US-style initiative in his speech to the Tory conference later today, pledging to end the "something for nothing" culture.
Ahead of his address, he insisted on Sky News that the policy was not a return to the Conservative "nasty party" of old - describing the move as "compassionate".
"This is not about punishment, this is about help," he stressed, but also said: "What we are saying is there is no option of doing nothing any more.
"We are saying we are going to help you into work but we are going to ask for something in return. I think it is a very compassionate approach to people who previous governments just ignored."
Amid concern that job centres will be overstretched, he added that they would have extra money to police the scheme.
Potentially, around 200,000 long-term Jobseeker's Allowance claimants could be eligible for the new initiative.
But ministers believe the numbers on it will be significantly lower, as many of those working covertly will decide it is no longer worth trying to claim benefits and drop out.
The scheme, devised by Work and Pensions Secretary Iain Duncan Smith, will cost around £300m - with the money likely to be found from departmental underspends.
Sky's chief political correspondent Jon Craig described the new conditions as "a tough crackdown".
Labour's shadow chief secretary to the Treasury, Rachel Reeves, said: "It's taken three wasted years of rising long-term unemployment and a failed Work Programme to come up with this new scheme.
"But this policy is not as ambitious as Labour's compulsory jobs guarantee, which would ensure there is a paid job for every young person out of work for over 12 months and every adult unemployed for more than two years."
During his speech later, Mr Osborne is not expected to unveil specific action on living standards, despite pressure to respond to Labour leader Ed Miliband's energy price freeze pledge last week.
Instead, the Chancellor will stress the need to stick with the coalition's economic plans, warning that the UK still has not fully recovered from the credit crunch.
He told Sky: "Our economic plan is helping Britain turn a corner. We have dealt with the problems we inherited, we have still got a long way to go ...
"By contrast the Labour party got us into this mess and all I hear from them is that they want more borrowing and more spending. A set of gimmicky announcements isn't going to cover up the fact that they don't have a credible economic policy."
:: The Chancellor's speech to the Conservative Party Conference in Manchester will be broadcast live from 11.30am on Sky News.
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