Virgin Trains will continue to run the West Coast Main line for nine to 13 months while the franchise competition is re-run.
Transport Secretary Patrick McLoughlin said in a statement on Monday: "On Wednesday 3 October, I announced the cancellation of the InterCity West Coast franchise procurement following the discovery of significant technical flaws in the way the franchise process was conducted by the Department for Transport.
"I immediately ordered two independent investigations to be undertaken urgently. The first, led by Sam Laidlaw, chief executive of Centrica, lead non-executive on procurement across the government, and lead non-executive member of the Departmental Board is examining what happened during the West Coast procurement and why, with the aim of establishing the lessons to be learned. The second review, led by Richard Brown, chairman of Eurostar, is focussing on any lessons to be learned for the upcoming franchising programme.
"I also announced, that the ongoing franchising programme should be paused, pending the outcome of the two investigations. This included pausing the live competitions on Essex Thameside, Great Western and Thameslink.
"This morning at 7am, I have made a further announcement to the London Stock Exchange, that the Department for Transport is commencing negotiations with Virgin Rail Group with a view to them remaining as operator of passenger services for the West Coast Main Line for a short period, of around 9 to 13 months while we run a competition for an interim franchise agreement. This interim agreement, which would be open to any bidders, will then run until a new long term West Coast franchise is ready to commence."
Virgin Trains responded in a statement: "Our customers have made clear they want Virgin Trains to continue its excellent service and we now have the chance to deliver that and offer customers some short-term continuity.
"We will now be working hard to make sure we continue to provide the service that has made us successful. Virgin Trains is grateful for the fantastic support from customers and staff over recent months."
First Group, dramatically stripped of the franchise before it took over, did not issue a statement today.