Citigroup, the world's biggest bank by revenue, is demanding that Wachovia must call off a deal to sell its business to Wells Fargo for $15.1 billion (£8.5 billion), claiming the bid breaches an existing agreement.

Citigroup agreed earlier this week to pay $2.16 billion for Wachovia's banking business and claims that after a weekend of emergency negotiations it has been providing liquidity support to Wachovia.

The bank had also gained the backing of the US Government for the deal.

Today, however, Wells Fargo announced that it would buy Wachovia for $15.1 billion, and issue $20 billion in stock to help cover the costs of the deal. Unlike Citigroup's bid, Wells Fargo would not require any assistance from the Government.

Citigroup said today that the deal between Wells Fargo and Wachovia was a breach of its "exclusive acquisition rights", and demanded that the offer must be called off.

The Federal Deposit Insurance Corporation, the US agency that guarantees bank deposits, also said today it “stands behind its previously announced agreement with Citigroup.”

However, it added that it will review all proposals and work with the regulators of Wachovia,Citigroup and Wells Fargo “to pursue a resolution that serves the public interest”.

Prior to its agreement with Citigroup, there had been a risk that the credit rating agencies would cut Wachovia's ratings, just as the bank prepared to roll over billions of dollars in debt.

Dick Kovacevich, chairman of Wells Fargo, said the new offer provided "superior value" to the Citigroup deal and will allow Wachovia shareholders to "have a meaningful opportunity to participate in the growth and success of a combined Wachovia-Wells Fargo that will be one of the world's great financial services companies".

Robert Steel, Wachovia's chief executive, said: "Today's announcement creates one of the strongest financial firms in the world and is great for all Wachovia constituencies: our shareholders, customers, colleagues and communities." He said that the deal allowed Wachovia to stay intact.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive