Northern Rock is to be nationalised after Chancellor Alistair Darling called time on private sector attempts to rescue the ailing lender.

The Rock will be brought under "temporary public ownership" after the Government ruled that proposals for the bank would not deliver "sufficient value for money" for the taxpayer.

Political opponents said the move marked the death of the Government's reputation for economic competence, but Mr Darling insisted it was the best way to safeguard people's money.

Emergency legislation will be rushed through Parliament today enabling Northern Rock to become state-owned.

Mr Darling said the move would be a temporary measure with the intention to sell Northern Rock back to the private sector "at the earliest and most prudent opportunity".

In making the decision, the Chancellor reassured savers at the bank that their money remained "safe and secure".

He will be hoping the comments will prevent a return to scenes last autumn when thousands of customers staged the first run on a bank for 150 years.

Yesterday's surprise announcement - no decision was expected until today at the earliest - means that the bank's estimated £55 billion liabilities will be placed in the public's lap.

It comes after a weekend in which Ministers had the chance to examine revised proposals from the two surviving bidders - Sir Richard Branson's Virgin Group and Northern Rock's own management team.

But "under the current market conditions" neither proposal delivered "sufficient value for money" to the taxpayer, Mr Darling said.

Sir Richard said he was disappointed by the decision.

He said: "We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward."

The Virgin-led bid had vowed to keep job cuts to a minimum. Staff at Northern Rock will now have an anxious wait to see what nationalisation will mean for them.

Ron Sandler, the City trouble-shooter who will take over the running of the publicly owned bank, admitted yesterday that the business will have to be slimmed down. But he declined to comment on what this meant in terms of potential job cuts.

Mr Sandler will go to Newcastle today to meet staff and representatives of the bank. Yesterday's move could spark a legal challenge by shareholders.

Hedge funds RAB Capital and SRM Global - who picked up around 19 per cent of Northern Rock's shares after its September crisis - are thought to believe at least 400p a share represents the book value of the company.

But it is unlikely that Ministers will be prepared to yield this amount to RAB, SRM and the company's 100,000 small shareholders - most of whom picked up stock when the Rock floated in 1997.

The UK Shareholders Association, representing individuals with a stake in Northern Rock, said it intended to "pursue any legal options available to it to thwart the nationalisation process and to ensure that fair and reasonable compensation is paid".

Investors were hit hard by the Northern Rock crisis. This time last year, the bank was worth £5.3 billion. Now it is worth just £375 million.

Mr Darling was quick to reassure savers that under nationalisation their money would be safe.

The Chancellor added: "At every stage the stability of the economy and the interests of depositors and taxpayers have been - and remain - our first concern."

Nationalisation would be the most effective way to support "Northern Rock's business, its savers, the wider financial system and safeguard taxpayer's money."

But political opponents hit out at the move. Tory shadow chancellor George Osborne said: "This is the day when Labour's reputation for economic competence died. Gordon Brown has dithered his way to the disaster of nationalisation."