Australian airline Qantas has grounded its entire fleet following an industrial dispute over pay and conditions.

All flights were cancelled on Saturday morning, including those scheduled to leave UK airports.

A statement from Qantas said that all employees involved in the dispute would be locked out from Monday evening.

Qantas's chief Alan Joyce said the airline's management had been left with "no other option".

"This course of action has been forced on us because of the damage done by three unions," he said. "I want to say how sorry I am that this course of action has become necessary."

By grounding the fleet, the airline looks set to lose around £13m a day.

The airline has been in a protracted dispute with three unions, including representatives of baggage and catering staff, engineers and long haul pilots.

Speaking in Perth, Australian Prime Minister Julia Gillard warned that the dispute could have "implications" for the country’s economy.

"As a result of the dramatic escalation of that dispute the government has taken a rare decision to make application to Fair Work Australia to have the industrial action terminated and have Fair Work Australia deal with this dispute," she said.

"I believe it is warranted in the circumstances we now face with Qantas... circumstances with this industrial dispute that could have implications for our national economy.

"I believe Australians want to see this sorted out.”

In August, the airline announced that it would be restructuring its workforce due to heavy losses on international flights.

More than 1,000 jobs are expected to be shed from the company's 35,000-strong workforce.

Flights in the air at the time of the grounding continued to their destination, but no further flights have taken off.

Thousand of passengers have been left stranded. Qantas said they would help passengers find accommodation or alterative airlines.

The airline placed a statement on its Facebook page advising customers not go to the airport until further notice.

Almost immediately following the announcement, the Australian government said it would intervene to resolve the dispute, calling for an emergency meeting.

"This is quite an extraordinary decision for Qantas management to take," said Anthony Albanese, Australia's transport minister.

"I indicated to Mr Joyce that I was disturbed by the fact that we have had a number of discussions and at no time had he indicated this was an action under consideration."

Joyce said that he could not agree to union demands as it would "destroy Qantas in the long term".

"I'm actually taking the bold decision, an unbelievable decision, a very hard decision, to ground this airline."

"We are locking out until the unions withdraw their extreme claim and reach an agreement with us," he said. "This is the fastest way to ensure the airline gets back in the air."

"They are trashing our strategy and our brand," he said.

"They must decide just how badly they want to hurt Qantas, their members... and the travelling public."