Speaking on the BBC's Andrew Marr Show on Sunday, he said that Ebbsfleet in Kent had the position, the infrastucture and the local support for the idea.
Osborne said the city could be delivered by an urban development corporation which could "cut through a lot of the obstacles that often happen when you want to build these homes".
Osborne said: "There is the land available, there is fantastic infrastructure with the high-speed line. It's on the river, it's in the South-East of England where a lot of the housing pressure has been.
"There are already some homes being built on the site, so progress was under way, but it was on a much, much smaller scale and with much less ambition than what I'm setting out today."
Last month, a think-tank report identified Ebbsfleet as a potential site, saying that a new town should be built there as part of a drive to regenerate the Thames Gateway area to meet London's growing housing need.
The Centre for London study called on the government to immediately consult on establishing a new town at Ebbsfleet, between Dartford and Gravesend, "in order to kick-start major development".
Osborne's comments ahead of his budget announcement on Wednesday follow speculation in January that the Government had a secret document detailing its plans to create new garden cities. The plans were confirmed by Communities Secretary Eric Pickles.
Leading landscape professionals welcomed the plans but warned against repeating past mistakes.