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Up to 21,000 public sector jobs could be lost in Wales over four years, a spending watchdog has warned.

In a stark report on public services, the Wales Audit Office (WAO) also says the Welsh NHS faces a tougher funding settlement than the rest of the UK.

A WAO report projects a cash shortfall of up to £570m for the NHS by 2013-14.

The Welsh government said it had been dealt a big budget cut by Westminster, but the Wales Office said the reduction was lower than the UK average.

The report, called A Picture of Public Services in Wales, lays out the big financial challenges facing the sector.

The NHS in Wales is predicted to be hardest hit, with a warning it may be forced into short-term cuts without having time to assess the impact on patient care at the end of the financial year.

It suggests that based on current budget plans, spending on health per head of population in Wales is likely to be the lowest of any of the UK countries by 2014-15.

It also warns that the NHS "does not have a good track record of managing within the constraints of a budget set at the start of the year" despite increased funding over the past 10 years.

The report comes almost a year after a spending review by Chancellor George Osborne imposed budget cuts across the public sector as part of the UK government's attempt to cut the country's deficit.

The Welsh government faces a real-terms capital and revenue cut of £1.9bn by 2014-15.

Auditor general Huw Vaughan Thomas said: "These sustained real-terms cuts are unprecedented in modern times, and most of those leading and working in public services today will never have had to deal with financial challenges of this nature."

His report uses a formula from the Treasury's Office of Budget Responsibility to estimate public sector job losses in the coming years.

It predicts cumulative losses of 3,105 jobs this financial year, rising to a total of 20,985 by 2014-15.

The figures indicate only a small proportion of potential job losses have actually occurred as a result of spending reductions, with the largest increases yet to come. The report also notes there will be knock-on effects on jobs in the private sector as a result.

The auditor general added: "Amongst the analysis of the difficulties they face, there are elements that provide some grounds for optimism.

"The need for transformation is now widely accepted and progress can be speeded up in order to put public services on a sustainable footing for the longer term."

Welsh Liberal Democrat leader Kirsty Williams said: "This report confirms what we have been sensing for a long time. Clearly, our NHS is in a very difficult situation.

"While I congratulate the NHS on improving some patient experiences, we know that too many services that are offered are woefully inadequate."

Conservative health spokesman Darren Millar said: "This report provides further damning, independent evidence that the Welsh NHS is under pressure like never before and ill-equipped to deal with the biggest cuts it has seen in its history."

A Welsh government spokesman said: "We welcome the auditor general for Wales report and its recognition that the Welsh government's budget will have been cut in real terms by £1.9bn by the UK government over the course of the next four years.

"The reality of what the auditor general himself describes as an 'unprecedented level of financial pressure' means we have had to take tough decisions on public spending.

"However, we have sought to prioritise and protect the services that the most vulnerable people in Wales depend on the most."

He said spending plans for next year increased funding for the NHS and schools, and that local health boards were producing plans to make sure their services were "safe, sustainable and effective".

Plaid Cymru health spokeswoman Elin Jones said: "In their draft budget, the Labour Welsh government has made clear statements that they intend to address the NHS budget shortfall by reconfiguration.

"This cannot be allowed to mean unacceptable centralisation of services away from our district general hospitals."

A Wales Office spokesperson said: "Public spending per head is 12% higher in Wales than in England while the cut in the Welsh budget over the next three years is lower than the UK average.

"It is, of course, a matter for the Welsh government to decide on the funding of many public services in Wales based on what it sees as its own priorities and using the £15bn budget at its disposal.

"In particular, while the Welsh government is cutting the NHS budget in real terms the UK government is increasing investment in the health service in England by £12.5bn over the next four years."

"The Comprehensive Spending Review last autumn set out the difficult decisions the UK government is taking to reduce the deficit it inherited from the last administration. Risks in the global economy underline the importance of sticking to that plan."