Washington - The long ailing US carmaker Chrysler LLC was to enter bankruptcy protection Thursday after last-ditch efforts to get an out-of-court agreement with its creditors collapsed, White House officials said.

Chrysler becomes the first of Detroit's "Big Three" carmakers to declare bankruptcy because of a sharp plunge in sales during the ongoing recession, and could provide some clues to rival General Motors Corp's fate in the coming month.

Administration officials insisted Chrysler's would be a quick, "surgical" bankruptcy - between 30 and 60 days - that would pave the way for an alliance with Italian carmaker Fiat Spa.

The company will file immediately for Chapter 11 bankruptcy protection in New York, officials said, and could present an alliance deal with Fiat as part of the filing. Chrysler's board will also be shaken up in the deal, and chief executive Bob Nardelli could be out of a job.

President Barack Obama was to announce the bankruptcy as his Thursday ultimatum ran out for Chrysler, the third-largest US carmaker, to either prove its viability or lose some 4.5 billion dollars in emergency loans.

GM, which has also taken a 15.5-billion-dollar federal bail-out, was given a separate deadline of June 1 to restructure its own operations. The US industry leader is still going through similar talks with its creditors to forego some 29 billion dollars in debt.

Chrysler will be given an extra 3.5 billion dollars in loans from the government during the bankruptcy process, a senior administration official said. The Chapter 11 filing allows the company to get court protection from its creditors.

Government-brokered talks aimed at saving the struggling carmaker failed late Wednesday as a group of smaller hedge fund lenders refused to accept an offer of some cash in exchange for larger amounts of debt, making a bankruptcy all but certain.

Chrysler's larger bank creditors including JP Morgan Chase & Co and Citigroup Inc had tentatively agreed to an offer of 2 billion dollars in cash in exchange for wiping out 6.9 billion dollars in debt. But White House officials expressed frustrations that other debtors had balked even after the government sweetened the deal to 2.25 billion dollars.

The last-minute negotiations were designed to pave the way for the alliance with Fiat, another key condition set out by the Obama administration if Chrysler is to survive. Fiat has said it is prepared to take a stake in the company, but without the heavy debt burden.

Chrysler's workers have also agreed to sacrifices. The top labour union, the United Auto Workers, on Wednesday approved a new contract that cut salaries and help keep the carmaker in business. White House officials said they didn't expect further job cuts during bankruptcy.

Assuming Chrysler is able to survive, the bankruptcy is expected to solidify its merger with Fiat. The Italian maker could potentially take a 20-per-cent stake in Chrysler, while a union retiree health care trust fund would own 55 per cent and the government would control the rest, financial news agency Bloomberg reported.

US carmakers have suffered from a nearly 40-per-cent plunge in domestic car sales since October, as a deep recession has gripped the country. But their troubles have been compounded by a failure to streamline their operations over the last decade and match the greener models produced by foreign competitors.