A technique is described for managing processor (CPU) resources in a host having virtual machines (VMs) executed thereon. A target size of a VM is determined based on its demand and CPU entitlement. If the VM's current size exceeds the target size, the technique dynamically changes the size of a VM in the host by increasing or decreasing the number of virtual CPUs available to the VM. To “deactivate” virtual CPUs, a high-priority balloon thread is launched and pinned to one of the virtual CPUs targeted for deactivation, and the underlying hypervisor deschedules execution of the virtual CPU accordingly. To “activate” virtual CPUs, the number of virtual CPUs, the launched balloon thread may be killed.