I am hopeful that the administrators will be able to start negotiations with another bidder as a matter of urgency

Transport Minister John Anderson

The consortium that was to buy the airline,Tesna, announced on Wednesday that it could not close a deal before the deadline of 28 February.

The government said it was holding emergency talks to find a new bidder.

Loss-making Ansett was grounded in September after being abandoned by its parent Air New Zealand.

More than 16,000 employees lost their jobs, although some were re-employed by the slimmed down successor, Ansett Mark II.

In a statement, Tesna confirmed the rescue deal could not be finalised by midnight on Thursday.

It blamed the collapse of its takeover talks on stalled negotiations on taking over Ansett's leases of domestic airport terminals across Australia.

The announcement of the failed talks has shocked the remaining workforce.

About 16,000 people lost their jobs

"I'm lucky... I have a partner to support me, but there are a lot of people here who rely solely on this money," said one of the employees, Liz Vrahos, wiping tears from her eyes.

Council of Trade Unions secretary, Greg Combet, called the collapse a tragedy for Ansett staff, saying there were "absolutely no jobs that can be saved in Ansett".

Deputy Prime Minister and Transport Minister John Anderson said the government was holding urgent discussions with the Ansett administrators.

"I recognise the concerns that must be felt by Ansett's employees and I am hopeful that the administrators will be able to start negotiations with another bidder as a matter of urgency," Mr Anderson said.

Tom Ballantyne of the Orient Aviation Magazine in Sydney told the BBC's World Business Report he believes it is unlikely those parties who had previously expressed an interest in Ansett would renew their interest.

"Ansett as a brand and as an airline is almost unsaveable now," he said.

Ansett said it would guarantee all flights until Monday and would offer refunds to travellers booked on flights after that.

Tesna's bid of A$3bn Australian dollars had still left Ansett's three million creditors facing an A$1.8bn shortfall.

But it was considered as the only serious offer on the table long before the sale was approved in January.