The cabinet minister said residents and businesses "deserve better" after the authority issued a Section 114 notice.

He said his intervention package "is formed of two complementary parts".

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"First, I propose to issue statutory directions to the council and to appoint commissioners to exercise certain functions of the council as required," he told the Commons.

"And second, I intend to launch a local inquiry to consider the more fundamental questions around how Birmingham got to this position and options for how it can become a sustainable council moving forward that secures best value for its residents."

Mr Gove said the commissioners would be in charge of the council's financial governance and scrutiny, and the authority would be expected to prepare and agree an improvement plan within six months.

John Cotton, leader of Birmingham City Council, welcomed the announcement and said officials will work with the government and the commissioners to get it back on "a sound financial footing".

He posted on X, formerly Twitter: "Although this is a challenging time, and comes after a decade of cuts totalling £1bn, we will make the tough decisions needed to transform the council, restore financial sustainability, and deliver the services that the people of Birmingham deserve."

Birmingham City Council has been grappling with an equal pay liability, which has grown over several years and is now estimated to stand at around £1bn.

It is also facing an in-year financial gap in its budget, which is currently in the region of £87m, and is having to spend around £100m on fixing errors in the implementation of a new IT system.

The Labour-run council is the largest local authority in Europe, comprising 101 councillors (65 Labour, 22 Conservative, 12 Liberal Democrat and two Green).

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Mr Gove said he is prepared to extend additional financial support to Birmingham, although he warned of "tough decisions" ahead.

Asked if the commissioners' powers would extend to decisions to raise council tax and sell assets, he said this has "sadly been the case in the past with local authorities that have failed", like Croydon and like Slough.

But he stressed it is "too soon to say what the precise mix of interventions that may be required are".

Mr Gove went on to say that although he believes strongly in local government, "when failures of local government occur, we must act".

However, Angela Rayner, Labour's new shadow levelling up secretary, said he "can't seriously say" the financial problems are Birmingham council's fault and claimed Tory austerity has pushed councils "to the brink".

'Crisis caused by Conservative's wrecking ball'

The deputy Labour leader said: "Local authorities across the country are struggling.

"After 13 years he can't seriously say that it is all their own fault. Perhaps he can confirm that only one council issued a section 114 notice before his party took over in 2010, but since then eight councils have issued notice, with warnings that another 26 councils are at risk of bankruptcy over the next two years?"

"The truth is, this crisis in local government has been caused by the Conservative's wrecking ball, with every swing another local council is pushed to the brink, and another local community falls over the edge."