Benefit claimants who fail to find work for more than 18 months will have to undertake work experience placements, under rules planned for late next year.
If they refuse they will lose access to their benefits for a period, the government says.
But the charity Mind said the use of sanctions would worsen peoples' mental health.
It is part of new plans to get people back to work, which will also see an extra £2.5bn spent on career support.
Under a plan that would need parliamentary approval, those solely eligible for the standard Universal Credit allowance who refuse to engage with job centre staff or accept work offered to them after six months will have their claims closed.
That means they will have to go through the application process again if they want to keep receiving benefits and lose access to extras such as free prescriptions and legal aid during that time.
Meanwhile, Labour pledged to invest an extra £1.1bn to cut NHS waiting lists to help get people back to work.
According to the Treasury, the number of people not seeking work has risen sharply since the pandemic, hurting the economy.
It said there were 300,000 people who had been registered as unemployed for over a year in the three months to July.
But Vicki Nash from mental health charity Mind said: "The increase in the use of sanctions is deeply worrying. Evidence has repeatedly shown they don't work and make people's mental health worse".
She added that changes to sick notes will also make it tougher to be signed off from work and could mean people don't get the time they need to recover.
"Poverty and mental health problems form a vicious cycle that need to be tackled by every part of government working together. Today's announcements look like they have come from departments working on different planets," she said.
Meanwhile, the number "inactive" due to long-term sickness or disability had risen by almost half a million since the pandemic to a record 2.6 million.
Chancellor Jeremy Hunt said that many of these people wanted to work and that "with almost a million vacancies in the jobs market the opportunities are there".
"These changes mean there's help and support for everyone [to find work] - but for those who refuse it, there are consequences too," he added.
"Anyone choosing to coast on the hard work of taxpayers will lose their benefits."
Under its Back to Work plan - which is part of next week's Autumn Statement - the government says it will expand and reform existing career help schemes for people with disabilities, health conditions or the long-term unemployed, as well as launch new ones.
It will also put additional staff in job centres to help claimants struggling to find work.
However, it said there would be stricter sanctions for "people who should be looking for work but are not".
Under the current sanctions regime, such claimants only have a deduction applied to their benefits until they re-comply with their requirement to meet with a work coach and establish a personalised job-seeking plan.
Ministers said the new rules would not apply to additional payments for child, housing or disability support.
From late 2024 mandatory work placement trials will also be rolled out for people unemployed longer than 18 months, and benefits will be removed from those who refuse to take part.
Digital tools will also be used to "track" attendance at job fairs and interviews under the tougher sanctions regime.
The Secretary of State for Work and Pensions, Mel Stride, said: "Our message is clear: if you are fit, if you refuse to work, if you are taking taxpayers for a ride - we will take your benefits away."
But Liberal Democrat's Treasurer Sarah Olney said the government seemed more interested in "penalising people than helping them get back into work."
Separately, Labour has unveiled its own back to work plan with a focus on cutting NHS waiting lists. Since January waiting lists have risen by 500,000 to a record 7.8 million, it says.
The party has pledged:
To provide an extra two million operations, scans and appointments a year by paying staff extra to run evening and weekend clinics. The plans will cost £1.1bn and be paid for by abolishing the non-dom tax status.
Recruit 8,500 more mental health professionals and introduce changes to incapacity benefits to encourage disabled people and people with health conditions to try work without fear of losing their income or having to be reassessed if the job does not work out.
Introduce a new statutory duty that would require job centres to work in partnership with organisations including the NHS to tackle the root causes of worklessness.
Labour's shadow chancellor Rachel Reeves told the BBC: "Labour have committed to getting rid of the non-dom status. If you make your home in Britain you should pay your taxes here and under Labour you will.
"We will put that money into creating every year an additional two million appointments, scans and operations in our National Health Service so that we can get those waiting lists down, get people the treatment they need, and get them in many cases back into work."