RAIL services on the East Coast Main Line will be brought back under public control following the termination of the franchise agreement with Virgin Trains East Coast (VTEC), Stagecoach Group has said.

The firm, which owns 90% of VTEC, said it was "surprised and disappointed" that the Government chose not to award it a new deal to continue running services on the London to Edinburgh route.

Trains will be run by the Department for Transport (DfT) through an operator of last resort (OLR).

Stagecoach pledged to "work constructively with the DfT and the OLR in the weeks ahead to ensure a professional transfer to the new arrangements".

Transport Secretary Chris Grayling told the Commons in February that the franchise would only be able to continue in its current form for a "very small number of months" as Stagecoach had "got its numbers wrong" and "overbid".

In November 2014, Virgin Trains East Coast - a joint venture between Stagecoach and Virgin - was awarded the franchise to run trains for eight years.

Stagecoach reported losses on the line and in November last year Mr Grayling announced that the franchise would be terminated in 2020 to enable it to become a public-private railway.

The decision to end the £3.3 billion contract this year has been described as a "bailout" by Labour and trade unions.

Mr Grayling insisted in February that "there is no question of anyone receiving a bailout".

He added: "Stagecoach will be held to all of its contractual obligations in full."

VTEC is the third private operator to fail to complete the full length of a contract to run services on the East Coast route.

GNER was stripped of the route in 2007 after its parent company suffered financial difficulties, while National Express withdrew in 2009.

Services were run by the DfT for six years up to VTEC taking over in 2015.

Mr Grayling told the Commons: "I will terminate Virgin Trains East Coast's contract on June 24 2018.

"I plan to use a period of Operator of Last Resort control to shape the new partnership.

"So on the same day we will start with the launch of a new long-term brand for the East Coast Main Line through the recreation of one of Britain's iconic rail brands, the London and North Eastern Railway, the LNER.

"The team that's been working for me since last autumn to form the Operator of Last Resort will take immediate control of passenger services.

"They will then begin the task of working with Network Rail to bring together the teams operating the track and trains on the LNER network."

Mr Grayling said he has received "official advice" that Virgin and Stagecoach should be allowed to continue bidding for future rail franchises.

He told the Commons: "A multi-disciplinary panel has considered the situation and recommended that both companies continue as train operators.

"They have advised that there is no suggestion of either malpractice or malicious intent in what has happened.

"Clearly we have to be vigilant about future financial commitments."

He added that the firms have paid a "high financial and reputational price" in relation to the East Coast route.

Shadow transport secretary Andy McDonald said Mr Grayling had "gifted" the operators a "£2 billion bailout" after they failed on the main line, adding: "And he has the audacity to come to that despatch box and say it's not reasonable to remove or place conditions on their passport. Absolutely ludicrous."

The service's most successful period had come under public ownership, Mr McDonald said, until it was "cynically reprivatised".

He went on: "The Government's incompetence has been disastrous for passengers and led to misery for millions.

"We've been here before, many, many times. Year after year, the Secretary of State and his predecessors have stood at the despatch box and told the House that privatisation is being reformed.

"We've had reform, reform and reform. We've had bailout after bailout. Rail companies win, passengers and taxpayers lose.

"There's a definition of insanity, doing the same thing over and over again and expecting the same results. This is the situation we find ourselves in today.

"Franchising remains at the heart of the alleged partnership. No amount of tinkering can solve the failings of a broken privatised system, where the public takes the risk and the train companies take the profit, aided and abetted by the Transport Secretary."

Labour Transport Committee chairwoman Lilian Greenwood called on Mr Grayling to apologise, saying her committee would be subjecting the failure to detailed scrutiny.

She said: "The Secretary of State must take responsibility for this serious repeat failure. If Virgin-Stagecoach got their figures wrong then so did his department and he should apologise to passengers and taxpayers for that failure."

Ms Greenwood also asked about the impact of the decision on other rail franchises which were "struggling to meet their obligations".

Mr Grayling insisted this railway had continued to deliver a higher level of contribution to the taxpayer than it did prior to 2014 and a higher level of customer satisfaction.