By Sumeet Desai and Miyoung Kim

LONDON/NEWCASTLE (Reuters) - Prime Minister Gordon Brown defended his handling of the nationalisation of Northern Rock on Monday, but will now have to grapple with the fallout of possible job cuts and shrinking the bank.

Brown, who helped transform the Labour Party in the 1990s by ditching an attachment to state ownership, has been accused of dithering in a five-month crisis in which the government lent around 25 billion pounds to keep Northern Rock afloat, while it cast around for private bidders.

"We did the right thing, at the right time for the right reasons," Brown told a news conference. "We have contained the problems. It has not spread across to the rest of the economy."

Chancellor Alistair Darling announced on Monday draft legislation in parliament allowing the government, which rejected two private sector-led bids this weekend, to take over Britain's fifth-largest mortgage bank.

"It was right to look at all the options available to us," Brown told the news conference, dismissing questions over why he took months to come to a decision. "We have lost nothing in doing so."

Day-to-day running of Northern Rock passes to Ron Sandler, the troubleshooter who rescued the Lloyd's of London insurance market from the brink of collapse.

Sandler, executive chairman, told reporters the bank had been granted a "period of stability" and a chance to pull back after a torrid few months.

"Public ownership is not about running down this bank," said Sandler. "It is all about stabilisation and building back from a sound, solid platform."