It will effectively mean trains being run by the Department for Transport through a so-called "operator of last resort", while a new public/private partnership is established.
Transport Secretary Chris Grayling says it will be put in the hands of a public-private partnership at least until about 2020.
After news broke that Ministers are pulling the plug on the East Coast rail line franchise after heavy losses for operators Stagecoach and Virgin, Chris Grayling has issued a further statement on his decision for the line's future.
Virgin and Stagecoach won the eight-year ICEC franchise in November 2014 and began operating trains the following March under the Virgin Trains East Coast brand.
In return for paying those premiums, Stagecoach and Virgin operated trains on the line which runs from London's Kings Cross station, up through Peterborough and passes through Leeds, York and Newcastle on its way to Edinburgh.
The East Coast rail service is to come under temporary state ownership, the government has decided. The pressure to avoid any further franchise collapse - or to see Stagecoach-Virgin emerge as operators again, with a diminishing market of bidders - could see the government struggle to get a new operator in place.
Mr Grayling said at the time it was clear the franchise would only continue in its current form for a "very small number of months" and the option of the Department for Transport stepping in was "very much on the table".
He added that he has received "official advice" that restrictions should not be placed on Virgin and Stagecoach's "passport" which entitles them to bid for future rail franchises, as "there is no suggestion of either malpractice or malicious intent".
The new publicly controlled rail line will be renamed the London and North Eastern Railway (LNER).
Virgin Trains East Coast's contract will be ended on June 24.
Critics described the move as a "bail out", with Lord Adonis resigning as chairman of the National Infrastructure Commission after claiming it would cost taxpayers hundreds of millions of pounds in lost payments by the operator. Quite the contrary. The disciplines of private sector operation returned more investment and better returns to taxpayers than public sector operation did.
Stagecoach Group Chief Executive Martin Griffiths said that while the company was "surprised and disappointed" at the government's decision not to allow it to continue running the ICED franchise under a revised contractual arrangement, it "respected" the decision.
The Labour party has pledged to nationalize industries like rail and water, policies which have been popular in the polls, and which helped Labour deny the pro-privatization Conservatives a majority government at last year's election.