Within the next few weeks the European Commission (EC) will give a decision on a Treasury proposal to divide the bank in preparation for a sell-off.

But the news has sparked fears of more job losses.

The Unite union expressed concern for the job security of the 4,500 staff at the nationalised Newcastle business over the split into what it described as the "good bank" and " bad bank".

One division which is already being referred to as the "good bank" includes its 50-strong branch network and its retail deposits of almost £20bn.

The other division will comprise its residential mortgages and wholesale lending, which analysts say is worth far less than the £100bn at which the bank has valued it.

The Rock was not expected to go up for sale until 2011, but with credit conditions easing, pressure is mounting on the Government to sell the business off to ease its vast debts.

The Treasury has stressed that no final decisions had been made on its future.

But John Shipley, Liberal Democrat leader of Newcastle City Council, warned that whatever changes are made to the Rock's ownership, jobs must be protected and its regional links preserved.

He said: "Nationalisation was never seen as a long-term solution. But if there is to be a change in the state of Northern Rock, it is vital that the headquarters function is maintained in the north east of England and jobs protected."

David Isbell, the Unite regional officer representing Northern Rock workers, said he was aware of the plans to split the bank into "good" and "bad" banks.

He added: "If that is to be the case, then it is our responsibility to ensure that staff on both sides of the divide are protected. The staff have to be equally treated for their future security."

Meanwhile, the Rock came under fire at the High Court in London yesterday.

The Government's defence of its zero-return compensation scheme for former shareholders in the bank has been attacked as "unlawful, unfair and manifestly disproportionate".

Individual shareholders – including current and retired employees of the bank – and representatives of two hedge funds which also stand to lose out, packed a London courtroom at the start of a legal challenge to the scheme.