The directors of Marks & Spencer today rejected the £9 billion bid by billionaire fashion tycoon Philip Green, saying that it significantly undervalued the retail group.

"The board considers that the proposal significantly undervalues the Group and its prospects and therefore rejects the proposal," M&S said in a statement.

Mr Green, the owner of Bhs and Arcadia’s eight fashion chains, earlier indicated a possible offer of 290-310p a share cash plus a 25 per cent stake in a new listed company.

After Mr Green unveiled his offer this morning, Marks & Spencer shares fell 13.5p per cent to 352.5p in early trade on disappointment that Revival had not unveiled a higher offer.

Revival said it would only proceed with the bid if it was recommended by the M&S board, which was shaken-up at the weekend after Mr Green's interest was revealed. The revamp saw Stuart Rose, the respected retail boss, appointed as chief executive and Paul Myners, the City veteran, made chairman.

Mr Rose said on his appointment: "I didn't take this job to sell the business."

And today, after overseeing the rejection of the Green bid, Mr Rose said: "The No 1 task is to make sure everyone is heading in the right direction. Morale in the business is good and the fundamentals are good.

"The ball is back in Philip Green’s court. If and when he comes back with a further offer we will give it the same consideration as we gave the offer this morning."

Speculation in the City now centres on whether Mr Green would return with a higher offer or even make an appeal to shareholders directly.

Nick Bubb, of Evolution Beeson Gregory, likened today’s developments to a "phoney war" that mirrored the early stages of the takeover of Arcadia by Mr Green.

"At this stage his proposed offer is well off the pace and it was a pretty easy decision for the M&S board to make," he said.

Investors would also want more detail on the value of any stake in Revival and a discussion of potential conflicts with other parts of his retail empire, he said.

"This is an opening salvo and falls short of what we think the shares could be worth," said Rupert Trotter at ISIS Asset Management, one of the institutional investors who account for more than 25 per cent of Marks & Spencer stock. "We need to await developments."

The bid is backed by £1.05 billion of Mr Green's own fortune (which is estimated at £3.6 billion), plus nearly £8 billion in support from banks including Goldman Sachs, Barclays Capital and HBOS.

Lord Stevenson, the HBOS chairman, has been appointed a non-executive member of the Revival board, with responsibility for recruiting other directors.

Revival said that an offer was also dependent on a review of information including Marks & Spencer's latest trading figures, spending commitments and details of the retailer's contract with George Davies, the clothes designer behind the Per Una brand.

The City has long questioned the secrecy surrounding M&S's dealings with Mr Davies, and the performance of Per Una, since the brand was launched in September 2001.

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