Dubai has received a crucial $10bn (£6bn) bailout from Abu Dhabi, news which sent shares in the Gulf region soaring this morning.

The surprise lifeline means the troubled emirate will avoid defaulting on its $4.1bn Islamic bond later today.

The emirate announced this morning that its neighbour had intervened to ease the debt crisis, which began almost three weeks ago. The cash injection will allow Dubai World, the state-controlled conglomerate, to make the repayment on the Islamic bond that matures later today. The remaining funds will be used to keep Dubai World operating until the end of April while it negotiates a restructuring deal with its creditors.

Investors had been braced for Dubai World to default on the $4.1bn sukuk. The Dubai stock market soared by over 10% by the close of trading – its best day's trading in 14 months – while the main index in Abu Dhabi jumped almost 8%. In London the FTSE 100 rose by 69 points, led by the banking sector, following gains in Asia.

Dubai also announced that the central bank of the United Arab Emirates has pledged to provide support to local banks.

"Today's actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance and market principles. There will certainly be challenges periodically, just as there are challenges in other major financial centres around the globe. We believe today's actions will best serve the interests of all stakeholders," said Sheikh Ahmad bin Saeed al-Maktoum, chairman of the Dubai Supreme Fiscal Committee.

"We are here today to reassure investors, financial and trade creditors, employees and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices. Dubai is, and will continue to be, a strong and vibrant global financial centre."

He added: "Our best days are yet to come."

Dubai World owns assets around the world, including P&O and the Turnberry golf course, and is the emirate's main investment arm. The group sent shivers around the financial world on 25 November when it requested a six-month delay in repaying its debt. Analysts have estimated that Dubai's debts exceed $100bn, and in early December Dubai World announced plans to restructure around $26bn.

Shares in British banks rose strongly this morning. Royal Bank of Scotland, which reportedly has a £200m exposure to Dubai, rose by over 4%. The London Stock Exchange itself, which is partly owned by Dubai, jumped by over 7% as fears receded that the emirate might have to sell its stake.

The cost of insuring Dubai's debt through a credit default swap also fell sharply this morning, from 541 to 417 basis points.

The Dubai government said today that it would bring in a new bankruptcy procedure, based on "internationally accepted standards for transparency and creditor protection", in case Dubai World cannot agree a deal with its creditors. It is also setting up a tribunal to rule on any cases brought against Dubai World as a results of its restructuring.