Chancellor Alistair Darling has outlined details of a funding plan that could help facilitate a private sale of Northern Rock.
Under the proposed solution, the Ј25bn Bank of England loan made to the troubled bank will be converted into bonds and sold to investors.
The bonds would be guaranteed by the government to encourage a private buyer to come forward.
Bidders have until 4 February to detail proposals based on the plans, he added.
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In effect, it turns Northern Rock debt into government bonds or gilt-edged stock.
It would mean the taxpayer would be exposed to Northern Rock for a much longer period than planned.
The Treasury extended the Bank of England loan facility for the stricken bank until 17 March.
"The scale of the financial support the Chancellor has today promised to provide to Northern Rock is breathtakingly large and without precedent," said the BBC's Business Editor Robert Peston.
"No British government has ever provided financial help on that scale to a business."
Reports over the weekend said that Sir Richard Branson's Virgin Group was preparing to make an improved offer for the beleaguered lender.
According to the Sunday Times, Virgin is preparing to cut its proposed stake in Northern Rock from 54% to 45%. Such a move would allow existing shareholders more room to share in any recovery in the price of Northern Rock stock.
On Saturday, Sir Richard said he had a "winnable package" to ensure the success of his bid for Northern Rock.
The other interested party is the Olivant group, led by former Abbey boss Luqman Arnold.
(BBC)
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