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.
The East Coast main line franchise is a joint venture of Stagecoach, which owns 90% of the franchise, and Virgin, which holds 10%.
The firm has run the East Coast franchise with Virgin since 2015 and said that the two companies had been in negotiations with the Department for Transport for a new franchise contract.
Virgin Trains East Coast is the third private operator to fail to complete the full length of a contract to run services on the East Coast route.
'I plan to use a period of Operator of Last Resort control to shape the new partnership.
But Stagecoach reported losses on the line and in November a year ago Mr Grayling announced that the franchise would be terminated in 2020 to enable it to become a public-private railway.
Stagecoach Group chief executive, Martin Griffiths, said: "We are surprised and disappointed that the department for transport has chosen not to proceed with our proposals".
United Kingdom government will take back control of the running of the rail route between London and Edinburgh from private operator Stagecoach (temporarily) after the company failed to make the contract work financially.
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The company said it "had been negotiating a new direct award franchise with the UK Department for Transport but we understand the Secretary of State for Transport is no longer considering entering into a new franchise" with it.
"However, we respect the Government's decision".
Trains on the East Coast Mainline will gradually transfer to LNER branding from VTEC branding.
"While reliability must continue to improve, and promised and new investments made, passengers will continue to judge services by the performance on the day of the train company and Network Rail, value for money, cleanliness of the train and crowding levels".
The failure of the current East Coast contract under the pro-privatization Conservative government plays into the hands of the opposition Labour party who have pledged to nationalize industries like rail and water.
"In all circumstances ownership of the infrastructure will remain in the public sector, but the railway is at its strongest when it is a genuine partnership between public and private".
"Britain's railways should be run, successfully, as a public service, not for private profit".