Beleaguered bank Northern Rock will be nationalised, the Chancellor has announced.

Alistair Darling said neither of the two leading private sector bids to take over the management of the ailing bank were acceptable.

A consortium led by Sir Richard Branson's Virgin Group was seen as the front-runner, ahead of an offer from the bank's management team.

But in a statement read out at a Treasury press conference, Mr Darling said: "In the current market conditions we do not believe the two proposals deliver sufficient value for money for the taxpayer."

He said nationalisation would be a temporary measure, with the bank set to return to private ownership "as soon as it is right to do so".

In fact, the chancellor did not use the word "nationalisation", preferring to use the phrase "temporary public ownership".

Ron Sandler, the former chief executive at Lloyd's of London, will run the business until a suitable buyer is found, it was confirmed.

Sir Richard Branson was one of a string of critics who slammed the decision.

The billionaire said in a statement: "We have tried our best to save the Northern Rock and the jobs of the staff.

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

Shadow chancellor George Osborne said the announcement marked the point when "Labour's reputation for economic competence died".

The Northern Rock crisis began in September last year when the Newcastle-based mortgage lender's board was forced to ask for emergency funds from the Bank of England after a collapse in the money markets.

Savers queued to withdraw funds in the first run on a British bank for 150 years.

Northern Rock shares will be suspended at the start of trading on the London Stock Exchange.

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