Business Minister Ian Pearson said: "We are disappointed with the news that, despite the bridging facility made available by the Government, Weststar of Malaysia has been unable to proceed with its purchase of LDV.

"We gave LDV a breathing space, a bridge to the future, but in the event, unfortunately, Weststar was unable to cross that bridge.

"This is clearly a worrying time for the workforce and we are ready to offer support to the workers through Advantage West Midlands and the Job Centre Rapid Response Team."

Labour MP Lindsay Hoyle (Chorley), a member of the Business Select Committee, said the Government should now intervene urgently to help save LDV.

He told the Press Association: "This is obviously a deeply worrying development, not only in the West Midlands but in other parts of the country, including Chorley, which have links to the business.

"We need a more hands-on approach from the Government to make sure that deals like this are successful. We have seen the experience in Germany where direct dealings over General Motors are saving jobs."

A spokesman for the Birmingham Chamber of Commerce said: "We are gravely disappointed at this news. We just hope that something can be retrieved. LDV has been down this route many times before and we hope it can bounce back again."

Joe Morgan, regional secretary of the GMB union, said: "This is really bad, unexpected news.

"GMB will be seeking immediate talks with the management of LDV, with the Government and with Weststar to see what the options for the future are.

"We are firmly of the view that the UK Government cannot stand aside and let these manufacturing jobs go to the wall."