In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

The decision, only two weeks after the Treasury took over the quasi-government mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

In a statement, the Fed said Tuesday night that it had decided to step in because, given the current financial turmoil, “a disorderly failure of A.I.G. could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance.”

The loan, which is for 24 months, is expected to be repaid from the proceeds of the sale of the firm’s assets, the statement said. “The loan is collateralized by all the assets of A.I.G., and of its primary non-regulated subsidiaries, and of its primary non-regulated subsidiaries.”

According to a person briefed on the matter, the agreement did not require shareholder approval. A.I.G.’s board approved the proposal at a meeting Tuesday night, the person said.

If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.’s board as well as its chief executive and chairman, Robert B. Willumstad.

The Fed’s action came after Treasury Secretary Henry M. Paulson Jr. and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday night to meet with House and Senate leaders. Mr. Paulson called the Senate majority leader, Harry Reid, Democrat of Nevada, about 5 p.m. and asked for a meeting in the Senate leader’s office, which began about 6:30 p.m.

They emerged just after 7:30 with Mr. Paulson and Mr. Bernanke looking grim but top lawmakers generally expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions does business with.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said Mr. Paulson had not requested, and did not appear to need, any new legislative authority for the bailout.

“The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”

The Federal Reserve had asked the investment banks Goldman Sachs and JPMorgan Chase to evaluate whether a banking consortium could be assembled to arrange a $75 billion loan for A.I.G. But the Federal Reserve and the two banks agreed late Tuesday that the plan could not be completed in time to rescue the insurance company.

Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.

The need for the loans became necessary after the major credit ratings agencies downgraded A.I.G. late Monday, a move that likely to have forced the company to turn over billions of dollars in collateral to its derivatives trading partners worsening its financial health.

Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.

But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.

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