The Department for Transport said Virgin Trains would continue to operate the West Coast Mainline for up to 13 months following the debacle over the rail franchise.
First Group was set to take over the line on 9th December but the deal collapsed after civil servants discovered significant flaws in the franchise process.
The Department said it would now negotiate with the Virgin Rail Group for it to continue providing rail services on the West Coast Main Line for a temporary period.
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It said the intention was now that Virgin remained as operator for between nine and 13 months while a competition is run for an interim franchise agreement.
This interim agreement - which the government said would be open to any bidders - will then run until the new long term West Coast franchise is ready to commence.
The government said this was the best way to ensure services were maintained and that there was no impact on passengers.
Transport Secretary Patrick McLoughlin said his priority was to fix the problem and the first step was to ensure services continued to run to the same standard and passengers were not affected when Virgin's contract expires in December.
"I believe Virgin remaining as operator for a short period of time is the best way to do this and my officials and I will be working flat out to make this happen," he said.
Stagecoach, which owns 49% of the Virgin Rail Group, said the latter would now commence discussions with the Department regarding its proposed approach and would update the market as appropriate.
The Department has also paused the on-going franchise programme, including live competitions on Essex Thameside, Great Western and Thameslink.
It has set up two independent reviews into what went wrong with the West Coast competition as well as the wider rail franchise programme.
