The Australian bank on Wednesday confirmed that it had made an offer for Abbey, but said merger talks had now ended.

"The discussions regarding the National's proposals did not result in any agreement and have now ceased," NAB said in a statement.

News of NAB's withdrawal came one day after Abbey rejected a rival takeover approach from Bank of Ireland, saying it was not in shareholders' best interests.

The Australian bank's retreat clears the way for Bank of Ireland, which is expected to pursue its bid for Abbey.

Persistence

The Irish bank said on Tuesday that it was "surprised" Abbey had rejected its takeover offer without discussion.

"Bank of Ireland reiterates its view that, subject to agreement on appropriate terms and satisfactory due diligence, a combination of Bank of Ireland Group and Abbey National plc would deliver significant value for both sets of shareholders."

The Irish bank is expected to unveil full details of its offer for Abbey within a week, the Financial Times reported.

A combination between Bank of Ireland and Abbey would create Europe's 11th biggest bank, with a market value of about £15bn ($21bn).

Even if it fends off the Irish bid, Abbey National, weakened by bad corporate loans and currently without a chief executive, is likely to remain a takeover target.