Transport Secretary Chris Grayling told the House of Commons this afternoon that no decision had yet been taken on the future of the Great Northern franchise, but that Great Northern services coming out of London King's Cross might be merged into LNER.
He added that the firms operating the franchise, which is held under a joint venture between Stagecoach and Virgin owning 90% and 10% respectively, "will have lost almost £200mln" but this had not been a loss to taxpayers "at this time".
"I plan to use a period of Operator of Last Resort control to shape the new partnership", Grayling said.
" When it is fully formed the new LNER operation will be a partnership between the public and private sectors".
Former transport minister Lord Adonis labelled the government's decision a "bailout" for the companies that would cost the taxpayer billions of pounds.
But Stagecoach reported losses on the line and in November past year Mr Grayling announced that the franchise would be terminated in 2020 to enable it to become a public-private railway.
Stagecoach Group said its understanding was that the announcement does not directly affect other franchises and bids for franchises in which the company has an involvement.
Anthony Smith, chief executive of the independent watchdog Transport Focus, said: "Whichever organisation runs East Coast services, under whatever new arrangements, passengers will be looking for the quality of current services to be maintained and built on".
East of England MEP Alex Mayer said "Let's hope this time the East Coast mainline is back in public hands for good".
The RMT, the largest rail union, called for the switch back to the public sector to be made permanent.
But now the Financial Times reports that Grayling may be considering scrapping the franchise, which would be the third time in less than a decade that the government has been forced to act on the contract.
He said: 'It's important staff and passengers are properly protected while, once again, the transport secretary tries to patch up a failing franchise system that everyone knows doesn't work.