An investment group run Luqman Arnold, former chief executive of Abbey National, will enter formal talks in the next 24 hours to take over Northern Rock in a move that could jeopardise Sir Richard Branson's Virgin Group's status as preferred buyer for the stricken mortgage bank.

It is understood that Olivant, which emerged as a late bidder for the Rock, is preparing to discuss its proposal for the bank with the tripartite authorities - the Bank of England, the Treasury and Financial Services Authority - who regulate the UK's financial system.

Mr Arnold and his bid team plan to pay market prices for a 15 per cent stake in Northern Rock and parachute in a management team of experts to turn around the ailing Tyneside lender.

Olivant has sold its proposition on the grounds that it is able to move immediately.

It is understood that Olivant aims to use £11 billion of borrowing facilities being made available by Royal Bank of Scotland and Citigroup to deliver a prompt repayment of some of the £25 billion Northern Rock has borrowed from the Bank of England.

Olivant submitted its proposal to buy Northern Rock over the weekend after gaining access to the bank's data room to perform financial due diligence.

Northern Rock's board has assessed, and rejected, Olivant's preliminary proposals, but the firm is keen to be seen as a serious buyer of the bank as an ongoing business.

Mr Arnold turned round struggling mortgage bank Abbey National before selling to Spain's Banco Santander several years ago.

Shares in Northern Rock soared back past the £1 barrier for the first time in nearly a week when Sir Richard's Virgin Group was named as the lender's preferred buyer earlier today.

The shares rose by 32.60 per cent, up 28p at 113.9p, despite Virgin's bid plan valuing the bank's equity at just 25p.

Dealers said short-selling was behind some of Northern Rock's shares rise, but also noted that other bidders were still in the frame and could still try to sabotage a Virgin takeover of the bank.

JC Flowers, the American investment group, has also been involved in talks to secure control of Northern Rock.

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