The Prime Minister Gordon Brown has been defending the government's decision to nationalise Northern Rock.
At a Downing Street briefing he called it "the right move at the right time for the right reasons".
The government's move has been fiercely criticised by shareholders who face losing almost all their investment.
Shadow chancellor George Osborne said the nationalisation plans were "catastrophic," and that they would be opposed by the Conservatives.
Chancellor Alistair Darling said two private takeover offers did not offer the taxpayer "sufficient value for money".
Emergency legislation is to be introduced to temporarily nationalise the stricken Northern Rock bank.
Emergency legislation is to be introduced to temporarily nationalise the stricken Northern Rock bank.
Chancellor Alistair Darling said he made the decision because two private takeover offers did not offer the taxpayer "sufficient value for money".
Trading in Northern Rock shares has been suspended.
Trading in Northern Rock shares has been suspended.
Shadow chancellor George Osborne said the nationalisation plans were "catastrophic," and that they would be opposed by the Conservatives.
"The trouble with nationalisation, as we're about to discover, [is that] getting into nationalisation is a lot easier than getting out - as those of us who have read about the 1970s can remember," Mr Osborne said.
It is the biggest decision made yet by this Prime Minister Robert Peston, BBC Business Editor Read Robert's blog
But the chancellor has been defending his move, saying Northern Rock will eventually be moved back into the private sector.
"We had independent advisers look at this, and they all pointed in one direction: the best thing to do was to take the bank into a period of temporary public ownership before ultimately trying to return it to the private sector," he told the BBC.
Prime Minister Gordon Brown will hold a news conference on the crisis at 1100 GMT.
Legal challenge
Under nationalisation rules, Northern Rock's shareholders will be offered compensation for their holding at a level set by a government-appointed panel.
The calculation will be based on the bank's value without government guarantees.
However, analysts say under those conditions shareholders will receive very little.
It seems likely that shareholder groups will take legal action over the government's move.
Roger Lawson, chairman of the Northern Rock Shareholders' Action Group said he thought there were "good grounds" for legal action.
"We've already considered it and obviously SRM - who are one of the major institutional shareholders - have effectively promised legal action already if nationalisation went ahead," Mr Lawson said.
Reassuring savers
A consortium led by the Virgin group had put forward a rescue proposal for the beleaguered bank, and a plan from management had also been considered.
But ministers decided that nationalisation was the best option.
The bank will be run at arm's length and on a commercial basis Alistair Darling Q&A: The nationalisation
UK taxpayers are now subsidising the bank in loans and guarantees to other lenders to the tune of about £55bn.
Under the new strategy this will jump to £110bn, a cost of £3,500 per taxpayer.
Explaining the government's decision, Mr Darling said it was better for the government to hold onto Northern Rock until market conditions improve and its value increases.
He emphasised that "the long-term ownership of this bank must lie in the private sector".
Ron Sandler, the former boss of the Lloyd's of London insurance market, will lead Northern Rock.
Mr Sandler is widely respected for restoring confidence in Lloyd's after its years in financial disarray.
He is due to give a news briefing at 1300 GMT from Northern Rock's headquarters in Newscastle.
