The social housing budget in England is to be cut by more than 50% in the Spending Review, the BBC understands.
Council houses "for life" will also end for new tenants, with their entitlement assessed at regular intervals.
Despite the cuts, ministers are likely to set a target of building 150,000 affordable homes, changing the way councils charge rent to finance them.
Tenants will be charged nearer the going market rate, to release cash for the building programme.
The proposed changes represent the biggest shake-up to social housing provision in decades - but campaigners fear the most vulnerable in society will lose out as they are squeezed by higher rents, cuts to housing benefit and a greater shortage of affordable rented accommodation.
"There will be an increasing number of people who just won't be able to afford somewhere to live. So while we think the government is right to reform, we are not entirely sure this is the way to do it," said Chartered Institute of Housing chief executive Sarah Webb.
The previous Labour government was committed to spending £8bn between 2008 and 2011 on new social housing.
In 2009/10 it spent £3.3bn on 30,857 new low cost rented properties and 22,079 new "affordable" homes to buy through the Homes and Communities Agency quango.
Campaigners fear cuts of 50% or more to the social housing budget could spell the end of new social housing in England but the government believes allowing councils to charge up to 80% or 90% of the market rate for rents will make up any shortfall.
Government insiders argue waiting lists are inflexible and could be used in a more intelligent way. Those with lower levels of housing need could be offered an "affordable" rather than a "social" rent, with a lower rate of government subsidy.
The private rented sector would also be expected to take up more of the burden of housing the poor, although campaigners have questioned whether this will happen.
Ministers are also expected to introduce a "flexible tenancy" for people who move into council housing for the first time.
Tenants will be checked over a period of time to see if they still require help with housing from their local authority, the BBC has learned.
According to the BBC's chief political correspondent, Norman Smith, the government will launch a consultation on its proposals for reforming social housing later in the year.
It is understood the proposals to review "tenancy for life" agreements would only apply to new tenants.
In August, Prime Minister David Cameron suggested tenants in England should get fixed-term contracts and be encouraged to move into the private housing sector if their finances improve.
He said greater flexibility was required within the social housing system, allowing tenants to move to find work.
But Lib Dem deputy leader Simon Hughes said his party was against the idea, which was not coalition policy.
Labour accused Mr Cameron of threatening the long-term stability people value from secure tenancy.
At present, council tenants keep their property for life unless they breach their tenancy agreement, for example, by engaging in anti-social behaviour. They can also pass their homes onto their children.
Housing is a devolved matter for the administrations of Wales, Scotland and Northern Ireland, so this change will only apply in England.
Housing minister Grant Shapps said Mr Cameron was simply "opening up the debate" and any changes - such as preventing homes from being transferred to a second generation - would not affect any existing council or housing association tenants.
Mr Shapps also said he hoped to legislate later this year to create a National Home Swap Scheme, which would allow people in unsuitable accommodation - such as a pensioner who wants to move to a smaller home - to swap for something more suitable.
The National Housing Federation said it had been told housing was likely to be one of the biggest losers in the Spending Review - with "doomsday" cuts anticipated which will see affordable housebuilding virtually grind to a halt.
The federation, which represents England's housing associations, warned 50% cuts would "effectively shut the door on an entire generation of families on lower incomes by withdrawing billions of pounds worth of funding for affordable housing schemes".
It also claimed more than 360,000 jobs would be lost in the construction industry every year if cuts on the scale being proposed were introduced.
Federation chief executive David Orr said: "The government said it was committed to social housing and to protecting the most vulnerable. This can only be interpreted as a blatant betrayal of those promises and a kick in the teeth to millions of people stuck on waiting lists."
Sarah Webb, chief executive of the Chartered Institute of Housing, said proposals to review "tenancy for life" agreements would do little to make more houses available.
"I don't understand how this is going to help increase the number of houses available, because if you can afford to buy you will go and do that already," she said.
"I think there are some people out there who would be quite happy to take a five-year tenancy but they're the minority."
She said it was necessary to provide people with a safe, secure and affordable place to live.
There are currently some eight million tenants in social housing in England.
More than 250,000 households live in overcrowded conditions while a further 430,000 are unable to easily downsize from larger properties they no longer need.
Last month, Work and Pensions Secretary Iain Duncan Smith suggested social housing tenants could be given incentives to relocate where there are jobs - prompting accusations from Labour that he was resurrecting a "profoundly unfair" 1980s Conservative call to the unemployed to "get on your bikes".