The government tonight backed an ­eleventh hour takeover of LDV with a £5m loan that will save the van maker from sliding into administration.

A deal safeguarding hundreds of jobs has been proposed by Weststar, a Malaysian firm that distributes LDV vehicles in Asia. However, a bridging loan of up to £5m had to be secured from the Department for Business, Enterprise and Regulatory Reform in order to keep LDV as a going concern while the deal is completed.

The minister for business and economics, Ian Pearson, said the Weststar proposal had received state backing because it had the best chance of preserving LDV's mothballed Washwood Heath plant, which employs 850 workers. It is understood that Weststar has yet to guarantee that it will keep production in the UK.

"Weststar's proposed purchase of LDV offers the only credible chance of keeping this manufacturing plant in the UK," said Pearson. "While completion of the deal is not certain, it would have been irresponsible of the government not to support it going forward. But this is a one-off bridging loan to Weststar and it cannot be extended." BERR will extend the loan for no more than a month.

LDV's owner, GAZ, the Russian car maker, has been seeking a buyer for a business that also contributes to the livelihoods of thousands more workers at suppliers and component manufacturers. GAZ is owned by Oleg Deripaska, a Russian oligarch whose friendship with Lord Mandelson, the business secretary, has added further complications to the problem. The decision on whether to award LDV's would-be buyers a bridging loan was taken by Pearson after Mandelson abstained from all LDV-related decisions.

Joe Morgan, an official of the GMB union, said: "We hope that this is welcome news, and we look forward to talking to the new owners as soon as we can."

But the saga has tempered optimism that a deal will finally be struck because the firm has appeared close to a rescue before. A union source said: "We are not putting the champagne on ice because a rescue has been mooted for so long."

LDV workers have been warned their wages will not be guaranteed from this week, as cash reserves run out after months of negotiations. A planned management buyout led by Erik Eberhardson, the outgoing GAZ chairman, did not get off the ground and it is understood that unpaid suppliers were preparing to push the firm into administration.

Car and van sales have suffered massive falls in the recession, with March car sales falling 30.5%. The Society of Motor Manufacturers and Traders is forecasting that only 1.72m new vehicles will be sold in 2009, against 2.13m in 2008.