Northern Rock offered borrowers loans of up to 125% of the value of their properties from the time of its emergency support from the Bank of England in September 2007 until it was on the brink of public ownership in February 2008.
The Conservatives said the failure to end high risk mortgages immediately after billions of pounds of public money were injected could not be "excused" by the urgency of the situation.
Officials failed to "ask the right questions" about the quality of loans Northern Rock was offering, said shadow chief secretary to the Treasury Philip Hammond.
"It is really astonishing to discover that the Treasury did not clamp down on that immediately," he told BBC News.
"Taxpayers will find that truly shocking".
He compared it to the failure to limit the scale of the pension taken by Sir Fred Goodwin.
The Lib Dems said the Treasury's handling of Northern Rock in the months after the bail-out was a "total disgrace".
Treasury spokesman Vince Cable said he had warned Chancellor Alistair Darling several times about the need for Northern Rock to curtail 125% mortgages.
The evidence over who is responsible for the economic crisis and the regulatory failures which contributed to it all lead back directly to Downing Street
"We repeatedly warned the government that this was a terrible waste of taxpayers' money," he told BBC News.
"The government did nothing, saying this was a commercial matter. It should have intervened and stopped it."
The BBC's business editor Robert Peston said at the time of the Northern Rock rescue almost all the authorities were in denial about the scale of the financial crisis and underestimated the scale of falls in the housing market.
And he said, as the NAO pointed out, that at the time of the Northern Rock crisis there were only 24 staff at an over-stretched Treasury working on the problem and the priority was propping up the bank.
Treasury minister Stephen Timms said "lessons needed to be learnt" about the handling of Northern Rock.
But he insisted the report had "vindicated" ministers in their actions in saving the bank.
The Conservatives and Liberal Democrats supported the September 2007 bail-out of Northern Rock.
But both were critical of the government's handling of the crisis, which led to the first run on a British bank for more than 100 years.
Subsequently, the Conservatives said more efforts should have been made to find a private sector buyer while the Lib Dems said the bank should have been nationalised sooner.
The Scottish National Party highlighted suggestions in the NAO report that the Treasury was warned in 2004 that the regulatory regime was not equipped to handle an institution in trouble.
"The evidence over who is responsible for the economic crisis and the regulatory failures which contributed to it all lead back directly to Downing Street," said Stewart Hosie, the party's treasury spokesman.
The government said the issue had been "considered in depth" and "a good deal of detailed work was carried out from 2004 and through 2005 and 2006".
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