Virgin Trains East Coast, a joint venture between Stagecoach (90%) and Virgin (10%) won the right to operate the franchise between London and Edinburgh for eight years in 2014.
Stagecoach and Virgin were supposed to run services on the line until 2013, but the government had previously agreed to let them walk away from the agreement three years early.
Transport secretary Chris Grayling is expected to announce the fate of the East Coast rail franchise "within days".
Stagecoach Group PLC said Wednesday the United Kingdom government has chose to nationalise the London to Edinburgh InterCity East Coast train service.
Stagecoach pledged to "work constructively with the officials and the OLR in the weeks ahead to ensure a "professional transfer to the new arrangements".
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.
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.
While Grayling said there will be no sanctions against Virgin or Stagecoach for their failures, Labour and unions described the decision to end the £3.3bn contract as a "bailout".
It is the third time since 2007 that the 393-mile (632 km) route has been returned to government hands, highlighting the difficulties for private companies of accurately bidding to run services on the privatised train network.
Passenger and freight rail services in Britain were privatised in the 1990s, when routes were grouped into franchises and operators bid to run services for a set number of years.
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".
Those companies have run the lines on a for-profit basis, but the government has been forced to step in when those contracts have failed, and the government-owned Directly Operated Railways ran the East Coast service from 2009-2015.
Mr Grayling told the Commons: 'I will terminate Virgin Trains East Coast's contract on June 24 2018.
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