Fears about the extent of the economic problems facing Spain intensified yesterday when the country's largest property developer filed for bankruptcy.

Martinsa-Fadesa, whose interests span apartment buildings, hotels and golf courses, said that it had been unable to secure a €150 million (£119 million) loan from the banks and creditors that hold its €5 billion of debt.

The move sparked panic in Spain's financial community, deepening concerns that the Government may be forced to step in to shore up property companies struggling to cope with a collapse in the housing market.

Alejandro Varela, a fund manager with the Renta 4 brokerage, said: “If this happens with one of the big ones, who knows what is happening to the medium and small promoters. The problem is debt. These companies grew very fast thanks to generous financing from the banking sector.”

Three of Martinsa-Fadesa's creditor banks - Banco Popular, Caja Madrid and La Caixa - said that they had made provisions totalling €542 million against their exposure to the company. It was unclear whether Santander,

the bank that has bid £1.3billion for Alliance & Leicester, had any significant exposure to the company.

More than 700,000 houses were built in Spain in 2006, more than Britain, Germany and France combined, but the market ground to a halt last year amid rising interest rates and tighter lending conditions from banks worried about the sub-prime crisis in the United States. House prices in the country are falling at the fastest rate for a decade.

The downturn has spread to the wider economy. Pirelli, the Italian tyre group, has shelved plans to open a factory in Spain and Roca, a bathroom ceramics company, has cut 400 jobs.