Rail services on the East Coast Main Line will be brought back under public control after ministers axed the deal with operator Virgin.
The move comes just over three years after Virgin Trains East Coast started running under a franchise of Virgin Trains and Stagecoach.
Transport secretary Chris Grayling is expected to announce the fate of the East Coast rail franchise "within days".
Mr Grayling said: "In February, I gave the House an update on the financial problems on the East Coast Mainline, and indicated the current franchise would run out of money within months".
"When it is fully formed. the new LNER operation will be a partnership between the public and private sectors".
It 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.
Labour described the decision to end the £3.3 billion contract as a "bailout".
However, he said he wanted the "smoothest possible transition" to the planned new East Coast Partnership, which will run both trains and tracks on the route.
Stagecoach chief executive Martin Griffiths said he was "surprised and disappointed".
He added: "However, we respect the Government's decision".
The collapse of a franchise awarded only in 2014 marks the third time in a decade that private companies have bailed out of running the 400-mile-route, fueling an argument over the future of the railway nearly 25 years after the network was privatized. During that time, we have attracted more passengers, greatly increased investment, achieved industry leading customer satisfaction and made significant payments to the taxpayer to reinvest in public services.
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.
"After three shambolic private sector failures on the east coast, the message should now sink in that these cowboys can not be trusted and should be locked out of the system on a permanent basis".