The Autumn Statement said that the measure would save nearly £3.4 billion over the next two financial years that could be "reprioritised to fund additional investment in infrastructure and support for businesses".
The chancellor said that local authorities would be exempt from the additional spending reduction in 2013/14 as "local government budgets are already being held down next year to deliver the freeze in council tax".
But Osborne added that town halls would be required to make additional two per cent of savings in 2014/15. According to the small print of the Autumn Statement, the savings will total £445 million.
The Autumn Statement said that protecting councils from further spending reductions next year would provide an "opportunity for local authorities to invest in reform in order to deliver further savings by consolidating back-offices and transforming service delivery".
Alan Downey, UK and Europe head of public sector at professional services firm KPMG, said that the "big question" is how government departments will respond to the additional spending cuts.
"Will they just trim at the margins, or will they opt for more radical change?" Downey asked.
"The hope must be that this turns to advantage by using it as an opportunity to drive fundamental reform of our public services, and invest the money that is saved in capital programmes."
A report published last month by public services watchdog the Audit Commission said that the scale of proposed council cuts to planning and development service budgets in 2012/13 is "markedly lower" than the disproportionate savings made to such services in 2011/12.
Autumn Statement 2012 is available here.