The building society takes over from Panasonic as the headline sponsor. It is better known for its involvement with sports as the sponsor of Nationwide League football, and it said that the Mercury Prize sponsorship would highlight its support of popular culture.
Philip Williamson, chief executive of Nationwide, said: "As a major sponsor of sport in the UK, we feel we have added a great deal to the fans' experience of football. It was a natural step for us to get involved with the nation's other major passion, music."
The Mercury Prize is awarded every year to the best British or Irish album. Recent winners have included Ms Dynamite, Dizzee Rascal and Badly Drawn Boy, with the shortlist of 12 albums usually proving an eclectic mix of rock, folk and classical music.
Other winners in recent years have been Gomez for 'Bring it On' in 1998, Talvin Singh for 'OK' in 1999 and PJ Harvey for 'Stories from the City, Stories from the Sea' in 2001.
Although the winner also takes home a cheque for £20,000, the real value of the prize is in record sales and in scrutinised by music fans all over the country. Sales always soar after artists win the award.
The building society's sponsorship comes with plans to add new initiatives over the coming years, starting with a Nationwide Mercury Art Competition, which will give students at art colleges and universities throughout the UK the chance to design the cover for the 2005 Nationwide Mercury Prize compilation CD. Shortlisted and commended works will feature in an exhibition.
David Wilkinson, executive producer of the Mercury Prize, said: "Nationwide is very well respected in the sponsorship world, and it is excellent news that they have shown this commitment to supporting British music through the prize.
"We are excited about the prospect of working with Nationwide -- it's great to have such a prominent British organisation backing UK culture in this way."
The Mercury Prize, like the Booker Prize and the Brit Awards, has become permanently known by the name of a sponsor no longer associated with the event. In the case of Mercury, it was Mercury Communications, which became One 2 One and is now owned by and trading as T-Mobile.
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