Business Secretary Vince Cable says he is "embarrassed" after being recorded suggesting he could walk out of the coalition.
He could "bring the government down" if pushed and that being in coalition was like "fighting a war", he told undercover Daily Telegraph reporters.
Labour said the Conservative-Liberal Democrat coalition was "paralysed".
In a statement later, Mr Cable said he regretted the comments and had no intention of leaving government.
The Telegraph reported that he had been recorded telling its reporters - who were posing as his constituents - that he had been involved in a "big argument" over dealing with the banks.
He said he and other Lib Dems had been pressing for a "very tough approach", which had been opposed by "our Conservative friends" and that he had been involved in a "big battle" over the cap on non-EU economic migration.
Asked about his influence in the government, he reportedly said: "I have a nuclear option [of resigning]; it's like fighting a war.
"They know I have nuclear weapons, but I don't have any conventional weapons. If they push me too far then I can walk out and bring the government down and they know that.
"So it is a question of how you use that intelligently without getting involved in a war that destroys all of us. That is quite a difficult position to be in and I am picking my fights. Some of which you may have seen."
The business secretary is one of the most senior Lib Dems, having previously served as the party's Treasury spokesman and deputy leader.
The Telegraph reported that he had criticised the speed at which the coalition was trying to push through changes in the health service, local government and other areas, which he described as a "kind of Maoist revolution", and said it was "in danger of getting out of control".
He said: "We are trying to do too many things, actually. Some of them are Lib Dem-inspired, but a lot of it is Tory-inspired. The problem is not that they are Tory-inspired, but that they haven't thought them through. We should be putting a brake on it."
The axing of child benefit for higher earners had been carried out in a "rather cack-handed way", Mr Cable said, adding: "They haven't yet done the winter fuel payments, but that's coming, I think."
Conservative leader David Cameron pledged during the election campaign that he would keep the winter fuel allowance, free television licence and free bus pass if elected.
In a statement following the Telegraph's claims, Mr Cable said: "Naturally I am embarrassed by these comments and I regret them.
"I have no intention of leaving the government. I am proud of what it is achieving and will continue to play my full part in delivering the priorities I and my party believe in, which are enshrined in the coalition agreement."
For Labour, shadow business secretary John Denham said: "This infighting explains why the Tory-led government has three times abandoned plans to publish a plan for growth. The government is paralysed while millions wonder if their job will go next."
Mark Littlewood, a former Lib Dem communications chief and current director general of the free-market Institute of Economic Affairs think-tank, said: "There are areas of known difference between the Conservative Party and the Liberal Democrats.
"But I think when you start describing the actions of your own government as being like a Maoist revolution and you threaten to potentially 'nuke' your colleagues if you're pushed too far, that is getting very close indeed to breaching cabinet collective responsibility."
Mr Cable has previously spoken out against the government's policy of imposing an interim cap on non-EU workers, suggesting it was damaging businesses.
BBC political correspondent Iain Watson said Lib Dem activists were likely to be reassured by Mr Cable's willingness to highlight differences with the Conservatives.
He added, however, that some fellow ministers would be irritated that he has potentially undermined a show of unity between the prime minister and deputy prime minister ahead of a joint news conference on Tuesday.
In the Commons shadow chancellor Alan Johnson asked George Osborne: "Does the chancellor recognise himself in the business secretary's description of 'cack-handed Tories'?"
Mr Osborne replied: "The business secretary is a powerful ally in the government and in promoting growth and, frankly, he's forgotten more about economics than the shadow chancellor ever knew."