The Work and Pensions Secretary has called on Scotland's First Minister to explain how the country would meet its welfare bill if it became independent.
Iain Duncan Smith has said that North Sea oil and gas revenues would not meet the costs of welfare spending which is 6% higher in Scotland.
First Minister Alex Salmond then branded Mr Duncan Smith's claims "offensive, nonsensical rubbish" and said he got his figures wrong.
But speaking at the Welfare to Work Scotland 2012 conference in Glasgow this afternoon, Mr Duncan Smith said that Scotland is better off as part of the Union.
"I simply make the point to Alex Salmond and his team that they cannot simply keep spending that money. They have to answer the question if it doesn't cover it, and it doesn't, how do they find that money?
"The fact that the UK population is ageing and that Scotland's population is ageing faster than the rest of UK is also an imperative for the debate about welfare spending.
"The gap between what is paid in Scotland for welfare and pensions needs to be met because you can't meet it from those revenues that he talks about constantly from North Sea oil."
Devolution is the best option for Scotland, he said.
"Just as our welfare union is of considerable benefit to all of us by pooling the resources and risks we all share in the benefits of a united United Kingdom, it doesn't need to be an all or nothing case.
"By devolution I believe Scotland can have the best of both worlds and I hope that when the Scottish people come to vote on that independence referendum they will come to see that."
Mr Duncan Smith made his speech after Mr Salmond told BBC News: "We contribute 9.6% of the UK's taxation, with 9.3% of the spending and just over 8% of the population. That is a relative surplus of about £2.7bn in 2010-11, or £500 for every man, woman and child in the country.
"The welfare bill is not financed out of North Sea oil, it is financed out of general taxation."
Mr Salmond said that a Scottish Parliament committee recently heard from a blind man who said he is being "reduced to penury" by the welfare cuts introduced by Mr Duncan Smith.
Mr Duncan Smith said that he accepts there is room for improvement in the way cases are assessed.
"There has been a lot of change and there will be more change," he said.
He also spoke about the new universal credit scheme which will have a single monthly benefit payment, rather than weekly or fortnightly as at present, for people looking for work or on a low income.
To be launched in 2013, it will replace income-based jobseeker's allowance, housing payments and other benefits.
Mr Duncan Smith insists it will help the poorest people and dismissed claims that the change will push low-income families into debt.
"The current mess of benefits and tax credits creates a clear perception that work does not pay. It is this factor which can stop an individual's journey back into work dead in its tracks. Changing this is what universal credit is all about. A single, simple payment withdrawn at a clear and consistent rate when people move into work. It will make work pay, at each and every hour."
A spokesman for Deputy First Minister Nicola Sturgeon accused the Work and Pensions Secretary of scaremongering. He said: "This is the height of hypocrisy from a Tory Government which is set on dismantling welfare provision as we know it, and only independence will protect Scots from the savage benefits cuts the Conservatives are now engaged in. The reality, as opposed to this blatant Tory scaremongering, is that Scotland more than pays its way when it comes to welfare and an independent Scotland will be well able to afford to protect the most vulnerable members of our society."
Scottish Conservative finance spokesman Gavin Brown said: "It is obvious that the spending on welfare and pensions would be extremely challenging in a separate Scotland."