The chief executive announced a 10 per cent reduction in civil service staffing to 160,000 over the next four years.
Cutting the size of the bureaucracy emerged as one of the key measures the government is to adopt as it seeks to tackle the ballooning budget deficit.
The cuts in the number of public servants come with an across-the-board freeze on recruitment from April, also announced by Tung Chee-hwa.
He also hinted at a possible pay cut for civil servants, saying they were ready to contribute to cutting government expenditure.
'I would like to stress that civil servants are not the cause of our fiscal deficit. They are prepared to ride out the present difficulties with the rest of the community and accept a pay cut, if circumstances so require,' he said.
It is expected the government will go ahead with a pay-level review after consulting civil service unions.