Chancellor George Osborne has publicly conceded for the first time the need for more airport capacity in South East England.

His admission came in a dramatic day of political debate which saw transport secretary Justine Greening continuing to rule out a third runway at Heathrow.

She also admitted that she would find it “difficult” to remain in a government that backed expansion at Heathrow.

Osborne declined to identify where the additional airport space would be found as London mayor Boris Johnson described calls to “shoehorn” an additional runway into Heathrow as “delusional”.

Prime Minister David Cameron indicated that he will not drop his opposition to a third runway at Heathrow until at least 2015 as his deputy Nick Clegg said the Liberal Democrats would block any move by their coalition partners to expand the London hub.

Cameron is reportedly prepared to consider the case for a new airport to the east of London, but has ruled out expanding Heathrow until after the next election despite pressure from business leaders over Heathrow.

The All Party Parliamentary Group on Aviation is expected to say today that efforts should be made to “ensure the UK retains and grows hub capacity” at Heathrow or another purpose-built airport.

MPs say that expanding the country’s airport capacity will provide a “firm foundation for the UK’s economic growth”.

Johnson indicated claimed that Cameron may be in favour of his scheme for an island airport in the Thames Estuary.

“It is plain the argument over aviation capacity is not going to vanish. You can’t long-grass this. It is necessary to come up with an answer. Business needs an answer and I’ve no doubt the Prime Minister is going to provide one,” he told the Daily Telegraph.

“They have moved a long way. They have shown great foresight in abandoning a position that said no runways ever, and they are now looking at expanding aviation capacity.”