The battle for Northern Rock intensified on Tuesday when the largest shareholder substantially raised its stake in a sign of its determination to block Sir Richard Branson’s takeover of the stricken lender.

Jon Wood’s SRM hedge fund increased its stake to 8.5 per cent in a clear power play intended to cajole the bank’s board into looking at other suitors in addition to Sir Richard’s Virgin consortium, which was chosen by Northern Rock’s board this week as preferred bidder.