About 5,000 MG Rover workers are to lose their jobs, administrators for the stricken company have said.
Thousands of workers will now lose their jobs
The news came after last-ditch rescue talks with a Chinese firm collapsed.
Prime Minister Tony Blair said £150m was being made available to help those being made redundant at MG Rover and the companies that supply it.
The administrators said about 1,000 staff would be kept on at Longbridge to complete work on unfinished cars but more redundancies could follow.
Mr Blair said the collapse of Rover was a "terrible shame".
"What we now have to do is look after the workforce and the families of the workforce," he said.
Chancellor Gordon Brown said the £150m support package would include more than £60m to help diversify industry in the Longbridge and wider Birmingham area, and to support MG Rover's supply chain.
In addition there would be £50m to fund retraining and re-skilling of workers made redundant and £40m ploughed into statutory redundancy payments.
The closer they looked, the less the Chinese liked what they saw
Conservative leader Michael Howard said he welcomed the support package.
"We support the decision in principle and recognise the need to help all those affected, not just those directly employed at MG Rover, but those in the dealerships and the component suppliers," he said.
Charles Kennedy, leader of the Liberal Democrats, said the government should have acted sooner to try to secure MG Rover's future.
Earlier on Friday, a potential Chinese investor, Shanghai Automotive Industry Corp, said it would not hold any further talks with MG Rover about a tie-up or any deal to buy the company out of administration.
The UK company, which employs about 6,000 people at Longbridge, was forced into administration last week after talks with Shanghai Automotive on a £1bn investment deal broke down.
PwC said it would now be seeking to "mothball" Longbridge and sell parts of the company.
"We'll explore what we would describe as the break-up of the business - we will carry on with the interested parties who want to talk about pieces of the business," said joint administrator Tony Lomas.
Analysts see the MG sports car brand as perhaps the most valuable asset left.
PwC said that about 70 separate offers had been made for parts of the business but the offers were at an early stage and no significant bids had been offered.
It said this left it no option but to start making staff redundant.
Mr Lomas added that the pensions position at MG Rover was "really complex".
He said he had met officials from the government's recently introduced Pensions Protection Fund to discuss the situation.
Mr Blair said the Fund would "kick in" for Rover workers.
Tony Woodley, head of the T&G union, said the unions' worst fears had been realised. As well as the Longbridge employees, about 18,000 people at MG Rover suppliers could lose their jobs.
Ms Hewitt told the BBC the government had done everything it possibly could.
Recent talks had focused on trying to persuade the Chinese firm that it was worth looking at all or part of Longbridge as a going concern.
But, after the original deal failed, unions had described the chances of stitching together a new rescue as "a million in one".
Shanghai Automotive had been put off by the "sheer scale of losses and financial liabilities the company is carrying and would go on carrying before any new models would come on stream", Ms Hewitt said.
John Towers, the head of the Phoenix Venture Holdings group that bought Rover from BMW for £10 in 2000, said on Friday that he felt no guilt over what had happened to MG Rover.
"I feel devastated about the fact that we have been stopped at this final hurdle," he said.
"I don't feel guilty about the process we have been through."
Some of the suppliers owed a total of about £200m by MG Rover held a meeting on Friday to discuss what happens next.
The Birmingham Chamber of Commerce & Industry (BCI) said about 400 suppliers in the area had been affected by MG Rover's move into administration.
Suppliers are facing "serious and immediate cash flow problems," it said.
BCI chief executive Sue Battle said the government and banks could help suppliers with VAT and tax holidays. The BCI also called for clarification as to who owns the stock at Longbridge and what has been paid for.
A government task force set up to help MG Rover suppliers has so far made payouts of £156,000 to 26 firms.