The chancellor has said he will introduce a US-style whistleblower system to uncover evidence of market manipulation in the City.

Alistair Darling is to outline legislation giving the Financial Services Authority plea bargaining powers, giving whistleblowers immunity from prosecution.

The move is inspired by a recent case of market abuse which saw shares in HBOS plunge.

In an interview with the Guardian, Darling said: "I can't allow us to get into a situation where people quite deliberately manipulate markets for personal gain and with the potential to destabilise the financial system."

He went on: "We have a duty to ensure we have clean and efficient markets. We will come down hard on people manipulating the system."

The move would give the FSA plea bargaining powers similar to those granted to tax officials, the Serious Fraud Office and the director of public prosecutions.

A similar system is used by America's Securities and Exchange Commission, which regulates US markets.