Transport secretary Philip Hammond has "suspended" the ordering of 700 new rail carriages, while a governmental spending review is carried out.
The government had planned to order 1400 new carriages, but this number has now been slashed by half until the review is complete.
Speaking on the BBC's Andrew Marr Show, Hammond said the construction of half of the carriages had already been been contracted, but "the remaining half I have suspended while we await the outcome of the spending review".
He said: "Clearly we will have to look at our priorities in the light of the budget that is eventually agreed for transport."
As part of a bid to cut public debt, all non-ringfenced government departments, including the Department for Transport, must put together a plan for cutting up to 40% of their spending.
On average, each department will need to reduce its budget by a minimum of 25%, to meet the government-imposed cuts.
Anne Godfrey, CEO of the Guild of Travel Management Companies, said the news of new rail carriages being put on hold was "unwelcome, but unsurprising".
"Additional capacity is absolutely required... At the moment unless we get increased capacity, the UK infrastructure is looking at in, about three years, being completely full."
Godfrey called for the DfT to make the development of high speed rail in the UK a top priority.
"They've got to commit to when, where and how much," she said.
"At the moment, the Tories and the Lib Dems have made very positive noises about high speed rail. We would hope they would make their plans more concrete soon.
"It would be nice to know where they're planning on building it, how much money they are willing to spend, given that there will be cuts, and when they expect it to start."
Hammond admitted a 25% cut in budget for the DfT would be "very challenging".
But he said it was important to question where the department's priorities lie. "How many of the things are we doing simply because they've become established over the years," he questioned.
"We are going to have to look at all of these different projects. We are going to have to prioritise aggressively, do the things which deliver the most value, which deliver the most support to economic growth.
"ransport infrastructure has a major part to play, but definitely we will not have as much money to spend on rail enhancements... as we did in the past."
Hammond also slammed Network Rail for its high operating costs.
"The first thing we have to do is drive efficiency through the transport system," he said.
"We've got the railway at the moment which costs about 40% more to operate than the French railway or the German railway... Very similar railways, but running at significantly lower costs."