The Bank of England has launched an emergency UK Government bond-buying programme to prevent borrowing costs from spiralling out of control and stave off a "material risk to UK financial stability".
The Bank announced it was stepping in to buy Government bonds - known as gilts - at an "urgent pace" after fears over the Government's economic policies sent the pound tumbling and sparked a sell-off in the gilts market.
While the pound hit an all-time record low of 1.03 against the US dollar on Monday, the yield on 10-year gilts - which is a proxy for the effective interest rate on public borrowing - has soared by the most in a five-year period since 1976, according to experts.
The Bank said: "Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.
"This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
"In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses."
The Treasury responded by reaffirming its commitment to the Bank of England's independence and said the Government "will continue to work closely with the Bank in support of its financial stability and inflation objectives".
It comes as Chancellor Kwasi Kwarteng has been stepping up efforts to reassure the City about his economic plans after the International Monetary Fund criticised the Government's strategy - and as the pound suffered further falls on Wednesday.
A Treasury spokesperson said: "The Bank of England, in line with its financial stability objective, carefully monitors financial markets and any potential risk to the flow of credit to the real economy, and subsequent effects on UK households and businesses.
"Global financial markets have seen significant volatility in recent days. The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK Government bonds from today in order to restore orderly market conditions."
'Abolish top rate of tax'
First Minister Nicola Sturgeon called for the UK parliament to be recalled in order for an emergency statement on the current crisis in the financial markets.
She tweeted: "UK in grip of rapidly deteriorating economic crisis. Emergency intervention by @bankofengland to reduce damage of UK gov own policies extraordinary. Commons should be immediately recalled (where even is PM?) & as at least an initial symbol of sense, top tax rate abolition dumped."
SNP Westminster leader Ian Blackford echoed the calls of Sturgeon for the parliament to be recalled.
He said: "The UK economic crisis shows exactly why Scotland needs to become an independent country - so we can escape the damage of Westminster control and get rid of the Tories for good.
"The disastrous Tory budget is taking the UK to the brink of catastrophe. The Chancellor must come out of hiding and act now to reverse the damage he has caused - and avoid the impending threat of an unprecedented UK economic crash.
"Parliament must be recalled immediately and an emergency statement must be brought forward within days, not weeks. The fact the IMF and Bank of England have been forced to intervene shows how much damage the Tories have done and how serious the situation is."
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