William Hill also shortened Boris Johnson's odds from 3/1 to 15/8, becoming the clear favourite, as "a series of mistakes" started to impact on Osborne's "future prospects".
"So sure-footed for so long, Mr Osborne was widely regarded as Cameron's natural and chosen successor, but recent blunders seem to have dealt him a serious blow to achieving that outcome and punters have begun defecting from him to Boris in particular, and others such as Michael Gove (down from 16/1 to 7/1) in droves," William Hill spokesman Graham Sharpe said.
"Mr Duncan Smith's resignation has dealt Mr Osborne another blow."
Former work and pensions secretary Iain Duncan Smith resigned on Friday evening following plans for further disability cuts were announced in Osborne's Budget on Wednesday. David Cameron said he was "puzzled and disappointed" by the news.
The move could undermine Osborne's attempts to succeed Cameron as the leader of the Conservative Party, with Labour head Jeremy Corbyn already saying the chancellor has lost "credibility".
"The resignation of Iain Duncan Smith reveals a government in disarray and a chancellor who has lost the credibility to manage the economy in the interests of the majority of our people," Corbyn said in a statement.
"The Budget has exposed George Osborne's record of profound unfairness and economic failure. Not only must the cuts to support for disabled people be abandoned, but the government must change economic course. The chancellor has failed the British people. he should follow the honourable course taken by Iain Duncan Smith and resign."
"Michael Gove was recently coming in at 16/1 odds and these have slashed quickly. If this pattern continues, it won't be long before Gove overtakes Osborne," a betting industry source said.
Yesterday William Hill widened Osborne's odds of becoming the next Prime Minister from 11/4 to 3/1, after the Budget failed to impress a range of spectators.
Today the bookmaker also shortened its odds for Osborne to leave his position as chancellor this year from 6/1 to 7/2.