Criticizing members of Congress as irresponsible, Panetta said lawmakers are willing to push the country off a fiscal cliff to damage their political opponents.
If Congress doesn't pass a budget, Panetta said, the Pentagon will have to absorb $46 billion in spending reductions in this fiscal year and will face a $35 billion shortfall in operating expenses.
"My fear is that there is a dangerous and callous attitude that is developing among some Republicans and some Democrats, that these dangerous cuts can be allowed to take place in order to blame the other party for the consequences," Panetta said in a speech at Georgetown University. "This is a kind of 'so what?' attitude that says, 'Let's see how bad it can get in order to have the other party blink.'"
On Capitol Hill, a group of GOP lawmakers from House and Senate offered a plan to cut the federal workforce and use the savings to replace some $85 billion in across-the-board budget cuts to the Pentagon and domestic programs.
The legislation reprises a plan offered last year that failed to advance.
In separate, highly detailed memos sent to Congress, the military services described widespread civilian furloughs, layoffs and hiring freezes that will hit workers all around the country. Overall, the military will furlough 800,000 civilian workers for 22 days, spread across more than five months, and will lay off as many as 46,000 temporary and contract employees.
The Navy says it will cease deployments to South America and the Caribbean and limit those to Europe.
The Air Force warned that it would cut operations at various missile defense radar sites from 24 hours to eight hours. The Army said it would cancel training center rotations for four brigades and cancel repairs for thousands of vehicles, radios and weapons.
"These steps would seriously damage the fragile American economy, and they would degrade our ability to respond to crisis precisely at a time of rising instability across the globe," Panetta said, adding that the self-made crisis "undermines the men and women in uniform who are willing to put their lives on the line in order to protect this country."
In addition to all of the more immediate cuts, U.S. troops are also likely to see a smaller pay hike next year than initially planned, due to strains on the budget. The Pentagon is recommending that the military get a 1 percent pay increase in 2014, instead of a 1.7 percent raise.
The Georgetown appearance was likely one of Panetta's last speeches as defense secretary. He is set to leave the Pentagon this month. Former Republican Sen. Chuck Hagel has been nominated to take his place, but the Senate Armed Services Committee on Wednesday announced its vote on the matter was being delayed.
Associated Press writer Brock Vergakis in Norfolk, Va., contributed to this report.