The chancellor of the exchequer told The Daily Telegraph newspaper that the previous Labour Party government had left the Ministry of Defence (MoD) tied into contracts for out of date weapons and vehicles.
"We are going to have a bunch of kit that makes us extremely well prepared to fight the Russians on the north German plain. That's not a war we are likely to face," Osborne said.
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There was little that Prime Minister David Cameron's Conservative-Liberal coalition government could do about it, he added.
"We are bound into contracts and that's just a fact of life," he said, branding the MoD "chaotic and disorganised".
He has asked ministries to find savings in a bid to trim Britain's record deficit.
The government-wide spending review is due out on October 20.
The Conservative Party -- to which Cameron, Osborne and Defence Secretary Liam Fox belong -- must first get through their annual conference, in Birmingham, central England, which starts on Sunday.
"Frankly, of all the budgets I have seen, the defence budget was the one that was the most chaotic, the most disorganised, the most over-committed," he said.
Osborne said Fox was already facing the "horrendous" situation of a budget that was in the red by 38 billion pounds (60 billion dollars, 44 billion euros) even before it was asked to find savings of 10 percent.
British troops are currently engaged in fighting Taliban insurgents in southern Afghanistan.
