The announcement came after China's Shanghai Automotive Industry Corp (SAIC) said it would not invest in the company.

However, there have also been reports this morning that Shanghai Automotive Industry Corp is still in takeover talks with Britain’s MG Rover Group, a senior official at China’s national planning agency said today.

“The firms’ talks are still ongoing,” Chen Bin, deputy director of the Industry Department of the National Development and Reform Commission, told Dow Jones Newswires in Beijing.

“The government has yet to kick off the review procedure (on the deal),” Chen said.

The actual status of the secretive dealings between the car companies was unclear.  If the collapse continues it could impact 6,000 staff and thousands more supply jobs, creating a political headache for the British government in the run-up to a general election in May.

Hewitt said the government could not give MG Rover a 100m sterling loan without a good chance of an alliance with the Chinese automaker.

'This is an issue between the government and MG Rover,' an SAIC spokesman said. 'We have said a deal would not be possible until Phoenix Venture Holdings (Rover's holding company) were able to secure the solvency of MG Rover for the period of two years and that hasn't been met,' the spokesman said.

MG Rover stopped production yesterday as suppliers postponed deliveries in fear that they would never be paid.

MG Rover, the last major British carmaker, dates back to 1905 and was sold to Germany's BMW in the 1990s before returning to British hands when it was sold to Phoenix four years ago.

The collapse of MG Rover is a massive crisis for Britain's carmaking industry. Ford, which owns the luxury brand Jaguar, cut jobs and scaled back production in England last year.