Union chiefs have warned of chaos and further industrial action if the Government forges ahead with public sector pay cuts in the forthcoming Budget.

Taoiseach Brian Cowen indicated that a salary axe of between 5% and 6% was in store after crunch talks on alternatives dramatically collapsed on Friday.

But union representatives said they were ready to fight the 1.3 billion euro cuts.

"When people go into work ... and see how close we were to a solution and how the Government failed to take it, you're into a pretty chaotic situation," Peter McLoone, chair of Congress' public services committee said.

"The notion that this will be just accepted on Thursday morning after the Budget, that's not going to happen."

Mr McLoone said the cost-cutting proposals, which included 12 days unpaid leave, would have saved 986 million euro in the sector. "It seems to us that the Government just lost their nerve at the end because of a huge public controversy over the 12 days," he added.

Congress President and Siptu chief Jack O'Connor said public sector workers would not take a pay cut lying down.

"We put forward a proposal which would have transformed the public service provision in Ireland and it was rejected in the interests of those who are interested in cutting pay across the economy," he said.

"This is an important meeting ... and people have had an opportunity to reflect over the weekend. People will have their own points of view and their own decisions to make. I hope the unions and the public service agree on a way forward."

Last month around 250,000 public servants downed tools around the country over the pay cut plans. A second strike scheduled for December 3 was averted after Government and unions edged closer to agreeing a deal.