The proportion of IT contractors working in the public sector has doubled to 27% over the past two years, a survey by contractor services firm Giant Group has found.
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The results mean the government is now the biggest employer of freelance IT staff in the UK.
In second place, the finance sector employs 24% of IT contractors, up from 19% in 2003, according to the survey of 2,500 freelance IT staff.
Rising demand for contractors in the public sector, combined with the City ramping up spending on security and compliance, could create a bidding war for key skills, Giant Group warned.
"The question for government is whether it can compete long term with a resurgent financial services industry in terms of getting the skills," said Matthew Brown, managing director at Giant Group. "If key IT staff are poached by the City, there could be serious consequences for the government's IT agenda."
Of the contractors surveyed, 28% believe financial services will offer them the most opportunities, and 21% think the public sector will do so.
The number of contractors employed in the telecoms sector has declined over the past two years, but the take up of voice over IP and 3G mobile services could boost IT employment.
"The telecoms sector is expected to drag itself up with technologies delivering multimedia content via the internet and on mobile handsets, which should drive future demand for IT networking skills," said Brown.