Prime Minister David Cameron and senior ministers are to get their own plane for official trips.
An RAF Voyager A330 air-to-air refuelling aircraft will be refitted at a cost of about £10m.
The government says the move will save about £775,000 a year as the plane will be cheaper than chartering flights.
But Labour said the size of any savings would not be known until he started using the plane while the SNP urged full transparency.
Most government departments are facing budget cuts of at least 25% over the next four years.
A source said the PM's flights, using either Royal Squadron planes or long haul charter, cost on average £6,700 per flying hour and the RAF aircraft would cost £2,000. It would be available for refuelling when it wasn't in use.
The flight would also be available to the Royal Family.
When he was prime minister, Gordon Brown cancelled plans drawn up by his predecessor Tony Blair to buy two private jets, which had been nicknamed "Blair Force One" in reference to the aircraft used to fly the US president, Air Force One.
Downing Street said the plane would save £775,000 a year over "at least the next 20 years", but it did not give any details about how this had been calculated.
The prime minister's spokesman said the plane's "primary use" would still be refuelling and it would continue to carry RAF livery, but 158 new seats would be fitted and it would provide "secure communications" for the prime minister.
The details of the new arrangements are expected to come at the strategic defence and security review on Monday.
There is no definite timing for the plane to come into service but it could be as early as next year.
A government spokesperson said; "As part of the government's defence review, we have been looking at ways to make better use of the RAF fleet to transport senior ministers and consequently deliver savings for taxpayers.
"We have decided to adapt one of our existing Voyager aircraft so that, in addition to its primary air tanking role, it can transport Ministers and it will also be available for the Royal family to use."
Shadow Cabinet Office minister Louise Haigh, for Labour, said: "It's five years since David Cameron said he'd cut his travel costs by 25%, so any attempt to reduce them is already long overdue.
"We won't know if the new prime ministerial plane is cheaper than charter flights until he starts using it and No 10 reveals the cost.
"But, given that the last set of spending figures from his own department were meant to be published 15 months ago, it could be years before we find out."
The SNP's Stewart Hosie said there needed to be "absolute transparency" to ensure the "best deal is made on behalf of the tax-payer".
"This announcement comes just a week before the spending review when we can expect to hear of more cuts from the Tories, which are already hitting people hard," he added.