The controversial sale of state-owned bank Northern Rock will be investigated by the public spending watchdog, it has been confirmed.

Amyas Morse, the head of the National Audit Office (NAO), said he would examine the deal to sell the bank to Sir Richard Branson's Virgin Money for £747 million.

Labour has questioned the timing and value for money of the agreement, which leaves taxpayers facing a potential £400 million-plus loss.

Shadow financial secretary Chris Leslie, to whom Mr Morse confirmed the probe in a letter, called for the sell-off to be delayed so that it could be pre-assessed by the NAO.

But the watchdog said that its role confined it to auditing a completed sale and it could not intervene in the process.

Chancellor George Osborne insists the sell-off represents good value for money and blames Labour for pushing him into a rapid disposal of the bailed-out institution.

An unpublished agreement with the EU meant the Government was bound to dispose of at least half of the bank, which was nationalised three years ago, by the end of 2013, he complained.

In the letter, Mr Morse told Mr Leslie: "I can confirm that I have decided to conduct a value for money study in relation to the creation and sale of Northern Rock PLC.

"My team will certainly consider the points which you raise when conducting the study.

"However, my role in conducting value for money studies is to act as an auditor, in this case of the completed sale transaction."