Sir Richard Branson's train company is set to carry on running the West Coast Main Line for the time being, following a Government decision.
Virgin Trains had lost out to rival transport company FirstGroup in the battle to operate a new 13-year West Coast franchise.
But with Sir Richard mounting a legal challenge to the Department for Transport (DfT) decision, the Government scrapped the franchise competition earlier this month after "significant technical flaws" were found in the franchise process.
Transport Secretary Patrick McLoughlin said the DfT will negotiate with Virgin for the company to continue running West Coast services for a short period - expected to be between nine and 13 months - while a competition is run for an interim franchise agreement. This will run until the new long-term West Coast agreement is ready to commence.
Mr McLoughlin said: "The cancellation of the InterCity West Coast franchise is deeply regrettable and I apologise to the bidders involved and taxpayers who have a right to expect better. My priority now is to fix the problem and the first step is to take urgent action to ensure that on December 9 services continue to run to the same standard and passengers are not affected. 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."
The DfT has also paused the ongoing franchise programme including live competitions on Essex Thameside, Great Western and Thameslink and set up two independent reviews into what went wrong with the West Coast competition and the wider DfT rail franchise programme.
The RMT transport union had been hoping that Mr McLoughlin would announce that the West Coast franchise would be run by the DfT in the public sector as is the case, at the moment, with the East Coast franchise.
RMT leader Bob Crow said: "This announcement is no surprise. The Government are ideologically opposed to public ownership of the railways and, in collusion with the private train operators, have stitched up a shabby deal that will enable them to rerun the whole franchise fiasco in a year's time."
FirstGroup said: "We believe the private sector provides the most effective and efficient way to deliver passenger rail services in the UK. We await the outcome of the independent investigations into the West Coast franchise competition and the wider rail franchising process, which we hope will provide a greater degree of certainty and confidence not only to future bidders but to employees, stakeholders and the travelling public too."
A Virgin Trains spokesman said: "Our customers have made clear they want us to continue our 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. We are grateful for the fantastic support from customers and staff over recent months."