The government is to take the East Coast rail service, run by National Express, into public ownership.
The troubled rail franchise, which is expected to have lost £20m in the first half of the year, is suffering from slumping passenger numbers.
Ministers have refused the company's requests for its contract with the government to be renegotiated.
The Department for Transport said that all East Coast services would continue and that tickets would be honoured.
Existing operational staff will transfer to the new state company which will be set up to operate the route.
The government added it intended to put the franchise out for tender from late next year.
'No bail-out'
National Express won the franchise from GNER in 2007.
It agreed to pay the government £1.4bn to run the East Coast main line, which runs between Edinburgh and London, until 2015.
At the time, many rail analysts said it had paid too much for the franchise.
Now National Express has said it will walk away from the loss-making route after failing to alter the terms of its agreement - a step which prompted the government to intervene.
Transport Secretary Lord Adonis said: "The government is not prepared to renegotiate rail franchises, because I'm simply not prepared to bail out companies that are unable to meet their commitments.
"It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging."
In a statement, the government added that it believed it had also had grounds to end National Express's two other rail franchises - East Anglia and c2c.
But the company said it felt the government had "no grounds" to do this and would challenge any such attempt in court.
It added that it did not expect the any losses from the East Coast franchise could be recouped from National Express.
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Interesting times, and something of an irony as C2C is regularly the best performer in the punctuality league table whilst
East Anglia have just announced a massive programme to increase capacity by a large percentage to reduce congestion
into / out of Liverpool Street and also with the 2012 Olympics at Stratford in mind.
They have also just announced record high punctuality figures.
