The largest-ever municipal bankruptcy in US history has been filed in Detroit, Michigan.

The move marks a new low for a city that was the cradle of the US automotive industry, and sets the stage for a costly court battle with creditors.

The bankruptcy, if approved by a federal judge, would force Detroit's thousands of creditors into negotiations to resolve an estimated $18bn (€13.7bn) in debt that has crippled Michigan's largest city.

The future of retiree pension and health benefits for thousands of workers hangs in the balance.

Anticipating the filing, investors drove prices of Detroit bonds and notes lower, sending their yields to record highs.

In a letter accompanying the filing, Michigan Governor Rick Snyder said he had approved a request from the city's Emergency Manager Kevyn Orr to file for Chapter 9 bankruptcy protection.

He noted: "Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing."

Speaking after the announcement, Mr Snyder, a Republican, said: "Let's stop the decline. Let's get to stability. Let's get things working in the right direction."

A White House spokeswoman said President Barack Obama and his senior team were monitoring the situation in Detroit closely.

"While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit," White House spokeswoman Amy Brundage said.

City government beset by corruption

Detroit was once synonymous with US manufacturing prowess.

Its automotive giants switched production to planes, tanks and munitions during World War II, earning the city the nickname of the "Arsenal of Democracy".

Now the city's name has become synonymous with decline, decay and crime. Detroit has seen its population fall to 700,000 from a peak of 1.8m people in 1950.

The city's government has been beset by corruption cases over the years.

Waning investment in street lights and emergency services has left it struggling to police the streets.

The city's murder rate is at its highest in nearly 40 years.

Only a third of its ambulances were in service in the first quarter of 2013.

There are nearly 78,000 abandoned buildings creating "additional public safety problems and reducing the quality of life in the city", the governor noted in his letter.