The Chancellor said he had been urged not to intervene directly in the creative sector — but had been convinced into action by what he had seen in Dundee.
He described the City of Discovery as a very good example” of how creative industries can operate, adding it made the “most compelling” case for the tax break for the computer games industry.
The break, recently approved by the EU Commission, is believed to support in excess of 10,000 jobs and be worth hundreds of millions of pounds to the UK gaming sector alone.
Mr Osborne told the Commonwealth Games Business Conference in Glasgow: “People have said I shouldn’t have intervened in this way.
“But I did step in to create specific tax breaks, not just for the film industry but also for animation, video game production and high-end television and special effects.
“And the result of that has been a massive increase in production in all of these sectors.
“When it came to video games, it was the case made from Dundee that was the most compelling — it was a very good example that.”
However, Mr Osborne said the boost from the new tax breaks had spawned a new problem for the industry in the form of an emerging skills gap which had to be filled in the future.
His comments were welcomed by economic and video games industry leaders in Tayside.
Chairwoman of the Dundee and Angus Chamber of Commerce Sandra Burke said: “It’s absolutely right that our world-class games industry should be able to compete more fairly on the global stage.
“This city is a hotbed of digital creativity that supports thousands of highly-skilled jobs and we‘re not at all surprised to hear the Chancellor say it was Dundee’s case for this valuable tax break that was the most compelling.
“I feel sure it will stimulate investment and growth in the sector for years to come.”
Paul Durrant, director of business development at Abertay University, said: “Tax breaks are an important step for games companies of all sizes. And they’re one part of what these companies need to reach their full potential — and to help Dundee grow and grow as a hub for the games industry.”