The government has contingency plans to nationalise Northern Rock in the event a private sale of the company does not take place, it has been claimed.
Officials have drafted a nationalisation bill which would bring the beleaguered bank into public ownership as early as February, should it fail to secure a commercial buyer, the Daily Telegraph reported today.
The paper claims Downing Street has commenced discussions with the Conservatives over the draft legislation, in order to allow the bill to be quickly ratified by parliament if necessary.
Without citing sources, the Telegraph said the government had ordered the bill to be drafted as a "fallback option" should efforts to sell Northern Rock fail.
Responding to the report, a Treasury spokesman said: "Until the transaction is finalised the government continues to keep all options open in relation to the future of Northern Rock."
Earlier this week a separate report suggested Northern Rock could soon be at the centre of a bidding war for its business.
The Financial Times said chancellor Alistair Darling had asked the troubled Newcastle-based lender to consider two renewed bids for the company.
It has been claimed US private equity groups JC Flowers and Cerberus have submitted revised offers for Northern Rock after the bank named a consortium led by Sir Richard Branson's Virgin Group as its preferred bidder last week.
An additional offer could also emerge from investment firm Olivant, which is headed by former Abbey chief executive Luqman Arnold, reports have suggested.
The FT said the chancellor believed the prospect of a bidding war for Northern Rock would help achieve the best outcome for the taxpayer, with government funds currently backing the billions of pounds worth of cash the lender has borrowed from the Bank of England to date.
Northern Rock was at the centre of the first run on a British bank in almost 150 years in September after it was forced to turn to the central bank for an emergency loan, having been unable to raise sufficient funds on the wholesale money markets due to a global credit crunch.
Two of Northern Rock's key shareholders, investment management firm RAB Capital and hedge fund SRM, have previously indicated their opposition to the Virgin bid. Concern has been expressed the consortium offer undervalues the lender and does not provide acceptable terms for investors.