They would lose one day of work per week, or 20 percent of their pay, for up to 22 weeks.
Panetta also said the across-the-board spending reductions would "put us on a path toward a hollow force," meaning a military incapable of fulfilling all of its missions.
In a written message to employees, Panetta said that he notified members of Congress Wednesday that if the White House and Congress cannot strike a deficit reduction deal before March 1 to avoid the furloughs, all affected workers will get at least 30 days' advance notice.
The furloughs would be part of a broader plan the Pentagon is preparing in order to cut $46 billion through the end of this budget year, which ends Sept. 30. More cuts would come in future years as long as the automatic government spending cuts, known as sequestration, remained in effect.
"In the event of sequestration we will do everything we can to be able to continue to perform our core mission of providing for the security of the United States, but there is no mistaking that the rigid nature of the cuts forced upon this department, and their scale, will result in a serious erosion of readiness across the force," Panetta wrote.
Adding his voice to the budget debate, Secretary of State John Kerry said the fiscal impasse is a serious threat to American credibility around the world.
"Think about it: It is hard to tell the leadership of any number of countries that they must resolve their economic issues if we don't resolve our own," Kerry said Wednesday in a speech at the University of Virginia.
Panetta was flying Wednesday to Brussels to attend a NATO defense ministers meeting. Spokesman George Little told reporters en route that Panetta would tell his counterparts that across-the-board budget cuts will hurt not only the U.S. military but also the ability of NATO to respond to crises.
Little said the Pentagon is also discussing the possibility of not being able to send military units on planned rotations to various places around the world. In anticipation of cuts, the Pentagon has already decided not to send one aircraft carrier back to the Persian Gulf, reducing the U.S. presence there to one carrier.
Pentagon officials have said their furloughs would be structured so that nearly all 800,000 civilian workers lose one day of work per week for 22 weeks, probably starting in late April. That means they would lose 20 percent of their pay over that period.
The Pentagon has begun discussing details of the furloughs with defense worker union officials.
President Barack Obama has exempted military personnel from furloughs.
House Speaker John Boehner put the blame on Obama and said he agrees with Panetta that automatic spending cuts would devastate the military.
Boehner released a copy of Panetta's letter formally notifying Congress that the Pentagon will have to consider furloughing a large portion of its civilian workforce if sequestration kicks in.
"The furloughs contemplated by this notice will do real harm to our national security," Panetta wrote in his congressional notification letter, adding that it would make troops less ready for combat and slow the acquisition of important weapons.
"Overall, sequestration will put us on a path toward a hollow force and inflict serious damage on our national security," Panetta wrote.
The only civilian Pentagon workers who would be exempt from furloughs would be Senate-confirmed political appointees such as the defense secretary and deputy defense secretary, as well as a relatively small number of workers deemed essential to protect the safety of defense property and personnel.
Panetta said the administration is still working with Congress to avoid automatic budget cuts by reaching agreement on a deficit reduction plan.
Associated Press writers Donna Cassata, Lolita C. Baldor and Bradley Klapper contributed to this report.