"It is absolutely necessary to complete the effort that began almost two years ago to consolidate public finances, restore competitiveness and economic recovery," Papademos told an emergency cabinet meeting. Draft legislation for the new austerity measures was submitted to parliament after the five-hour meeting.
In central Athens, clashes erupted outside Parliament between dozens of hooded youths and police in riot gear. Police said eight officers and two members of the public were injured, and six suspected rioters were arrested.
The violence broke out as more than 15,000 people took to the streets of the capital. Unions launched a two-day general strike that disrupted transport and other public services and that left state hospitals running with only emergency staff.
Debt-stricken Greece does not have the money to cover a $19.1 billion bond repayment on March 20, and it must reach a vital debt-relief deal with private bond investors before then.
Papademos said the bailout and the deal with private creditors would return Greece to growth next year and deliver a 4.5 percent primary surplus in 2012 - better than an earlier official prediction of 1.1 percent of gross domestic product.
"A disorderly default would cast our country into a catastrophic adventure. It would create conditions of uncontrollable economic chaos and social explosion," he warned.
"Greeks' standard of living in the event of a disorderly default would collapse, and the country would be swept into a deep vortex of recession, instability, unemployment, and penury," Papademos said.
He also warned that "either we will achieve an agreement that will set the country on a new course, or, if we backtrack in yet another historic display of cowardice, we will head for collapse."
Earlier Friday, the small, right-wing LAOS party in Papademos' coalition said it would not back the new measures. Four of its cabinet officials resigned. Two Socialists members have also quit.