Unveiling the 2016 budget in parliament, Mr Osborne said five-year-old children were 'consuming their bodyweight in sugar each year'.
Citing warnings that 'within a generation over half of all boys, and 70% of girls could be overweight or obese', he pointed to sugary drinks as 'one of the biggest contributors to childhood obesity' and set out plans for a sugar levy to take effect two years from now.
The chancellor also set out changes to public sector pensions that look set to increase employer contributions.
Reacting to the budget, BMA chairman Dr Mark Porter hit out at the failure to announce new funding for an NHS facing a growing financial crisis.
He said: 'It is disgraceful given the crisis facing the NHS that there was no promise of extra funding for a health service that is buckling under pressure from rising patient demand, falling resources and staff shortages.
'Hospitals and GP practices around the country are at breaking point and need urgent, extra investment to maintain even basic care to their patients.
'The political rhetoric does not match the reality on the ground of an NHS in crisis. The government’s funding promises have simply not materialised.'
Explaining the sugar levy, Mr Osborne said it will 'be assessed on the volume of the sugar-sweetened drinks [companies] produce or import'.
'There will be two bands,' he said. 'One for total sugar content above five grams per 100 millilitres; a second, higher band for the most sugary drinks with more than eight grams per 100 millilitres.
'Pure fruit juices and milk-based drinks will be excluded, and we’ll ensure the smallest producers are kept out of scope.'
Companies could choose to cut the sugar content in their drinks, or pass on the costs to consumers, which 'would have an impact on consumption'.
Baroness Shelia Hollins, BMA board of science chair, said: 'The chancellor’s decision to introduce a new levy on excessive sugar in soft drinks is a welcome step forward and a move called for in the BMA’s recent Food for Thought report. This is an important initiative that could help to begin to address the obesity crisis amongst young children, although the delay in introducing it for two years is disappointing.
'More needs to be done to invest in proper preventive measures that protect people’s lives and the public’s resources. The implementation of minimum alcohol unit pricing is still also badly needed given the billions spent on the impact of excessive alcohol consumption.'
NHS England chief executive Simon Stevens said: 'This bold and welcome action will send a powerful signal and incentivise soft drinks companies to act on the health consequences of their products. It is a major first step to what must be a comprehensive childhood obesity strategy that will help us shed pounds off our waistlines, and save pounds on future NHS costs.
'While no child needs a daily dose of sugary fizzy water, sadly soft drinks are now our children's largest single source of diabetes-inducing teeth-rotting excess sugar. And since poorer children are twice as likely to be obese than better off children, these measures should also cut child health inequalities. Obesity now affects one in five children, causes one in five cancer deaths, and already costs the NHS £5bn a year - so obesity is the new smoking.'