Liverpool could be run partly from Whitehall after a damning inspection report into the city council following arrests on corruption allegations.
The authority, a Labour stronghold, and its councillors will have some of their functions taken over by the Ministry for Housing, Communities and Local Government (MHCLG) for its day-to-day operations, through Government-appointed commissioners.
It is only the fifth time a “statutory intervention” has happened and regarded as a “last resort”.
The move came after the publication of a report by Max Caller, a local government inspector who was called in to Liverpool in December by Robert Jenrick, Secretary of State for the MHCLG.
The inspection came following the arrests of five men, including elected mayor Joe Anderson, who was held on suspicion of conspiracy to commit bribery and witness intimidation.
Mr Jenrick told the House of Commons said: “Expressed in formal terms, I am satisfied that the council is failing to comply with its best value duty. Therefore, I need to consider exercising my powers of intervention to secure compliance with the duty.
“To that end, in line with the procedures laid down in the Local Government Act 1999, I am writing today to the council asking them to make representations both on the Inspectorate’s report and on a proposed intervention package.
“This package is centred on putting in place commissioners who I will appoint to exercise certain and limited functions of the council as required for a minimum of three years.
“I will take whatever steps are necessary to uphold the good name of local government.”
Under the process the local authority is given 10 days to make representations on the proposals.
The focus of Mr Caller’s investigation is on property management, regeneration, highways, contracts and planning at the council over the past five years, which has seen a building boom in Liverpool city centre.
The council’s director of regeneration, Nick Kavanagh, was also arrested as part of the police probe into building and development contracts in the city and this week it was confirmed he had been dismissed from his role at the authority.
Both he and Mr Anderson deny any wrongdoing and have vowed to clear their names.
Merseyside Police said all suspects remain under investigation but bail has not been extended while their enquiries continue.
Liverpool being run remotely from London via commissioners appointed by a Conservative government will not be thought popular in the city, which was last controlled by the Tories in 1972, lost its last Tory MP 38 years ago and has not had a Tory councillor elected since 1998.
Earlier, Derek Hatton, who was a member of Labour’s militant faction and deputy mayor of the city council in the 1980s, said on Twitter: “Today could see the most outrageous and politically corrupt front to local democracy any of (us) have ever witnessed.
“Even in the 80s Thatcher stopped short of imposing commissioners… after she threw 47 of us out, local elections allowed 47 new Labour councillors to be then elected.”
The Local Government Act 1999 gives the Secretary of State powers to appoint a person to inspect an authority and to intervene, taking over its functions, either directly or through commissioners, where there is evidence that it is failing in its compliance with what is described as “best value” duties.
Best value means in practice councils must deliver a balanced budget, provide statutory services and secure value for money in spending decisions.
Since 2010, the Secretary of State has previously intervened in four local authorities – Doncaster, Tower Hamlets, Rotherham and Northamptonshire.
Guidance from the MHCLG states each intervention is different and options include other approaches, such as the issuing of directions to provide for specific actions, rather than the appointment of commissioners.