Liberal Democrat leader Vince Cable has accused the Government of putting “enormous” amounts of public cash at risk.
The former business secretary also argued that it should be shareholders and creditors, not taxpayers, that foot the bill to bail out the embattled construction giant.
Carillion is a main supplier to the Government and has contracts with the rail industry, schools, hospitals and prisons.
Meetings were being held in Whitehall today to discuss the future of the crisis-hit firm, which is struggling under £900million of debt and a £590million pension deficit.
It has seen its share price plummet almost 80 per cent in the past six months after making a string of profit warnings and breaching financial agreements with its lenders.
Unions have called on the Government to intervene to safeguard nearly 20,000 jobs that are now at risk.
Criticising the Government’s dealings with the company, Mr Cable told BBC Radio 4’s Today programme: “The Department of Transport seemed to be handing out contracts to keep Carillion going even though there had been profit warnings, even though there was a very high risk of this company going down.
“Enormous amounts of taxpayers’ money was being put at risk and that’s the problem the Government has now got to face.”
Warning against a Government bailout, he said: “I think what has to happen in this case is the contracts have to be kept going, supporting the supply chain and the tens of thousands of workers, and that can be done by the Government taking a lot of this in-house or re-tendering.
“The Government can’t just do a financial bailout. The shareholders and the creditors, the big banks, have got to take a hit, they can’t just offload all of the losses on to the taxpayer.”
Labour frontbencher Jon Trickett said: “It has been clear for months that Carillion has been in difficulty but the Government has continued to hand over contracts to the company even after profits warnings were issued.
“Jobs and public services are now at risk because the Tories were blinded by their commitment to a failing ideological project of introducing the profit motive into taxpayer-funded services.
“We urge the Government to stand ready to intervene and bring these crucial public sector contracts back in-house in order to protect Carillion’s employees, pension holders and British taxpayers.”
A Government spokeswoman said: “Carillion is a major supplier to the Government, with a number of long-term contracts. We are committed to maintaining a healthy supplier market and work closely with our key suppliers.
“The company has kept us informed of the steps it is taking to restructure. We remain supportive of their ongoing discussions with their stakeholders and await future updates on their progress.”