Transport Secretary Patrick McLoughlin announced the temporary deal, which will see Virgin carry on with the London to Scotland route until November 9, 2014.
After this time the West Coast Main Line will be let under a long-term franchise.
Virgin Rail will run the West Coast Main Line for a further 23 months, the Government announced.
The immediate future of a main London to Scotland rail route - thrown into doubt following a botched franchise process - is likely to become clearer later today.
The Government is expected to announce that Sir Richard Branson's train company, Virgin Rail, can for a time carry on running trains on the West Coast Main Line.
It is believed Transport Secretary Patrick McLoughlin could also publish the independent report he commissioned when he was forced to scrap the West Coast franchise bidding process.
Suspended Department for Transport Kate Mingay has issued a statement following the cancellation of FirstGroup's West Coast Main Line deal, in which she states her role has been "inaccurately portrayed".
I would like to make it clear that: I did not have lead responsibility for this project; Neither I nor any member of my team had any responsibility for the economic modelling for this project, or for any Department for Transport project; Nor did I have any responsibility for the financial modelling in respect of this project and I have not been involved in briefing Department for Transport ministers or other government ministers in respect of this project.
I will of course cooperate fully with all ongoing and future investigatory processes in relation to this matter, but wanted to correct the completely inaccurate portrayal of my role immediately.
Former cabinet secretary Lord O'Donnell, who retired last December, admitted the West Coast fiasco "does raise some issues about skills in the civil service".
He said civil servants who made mistakes should be held accountable, telling the BBC Radio 4 Today Programme:
There are civil servants up and down the country doing great jobs, but we are suffering some areas where there are skills shortages, in the commissioning area, in the procurement area.
Senior Labour MP Margaret Hodge said the West Coast main line rail fiasco exposed flaws in Whitehall processes.
She told BBC Radio 4's Today Programme: "It exposes in a very stark way that the present conventions on accountability between civil servants and ministers to Parliament and the public aren't working.
"It's yet another example ... of where the civil servants themselves have not really captured and taken on the role that is expected of them in today's society."
She added: "The way you climb the greasy pole in the civil service is that you change your job every couple of years.
"That's a disaster and we need to leave people in post so they take proper responsibility for the very difficult and complex job they have to do.
"Then we have to open up this issue of accountability so they can't hide behind lack of accountability for not telling us what the outcomes are."
Holyrood's Transport Minister will today make a statement on the "shambolic" cancellation of the West Coast main line rail franchise.
Keith Brown is expected to outline his concerns about the handling of the UK Government u-turn which has cost taxpayers £40 million.
In the wake of the controversial decision, Mr Brown complained that the Scottish Government was given no warning of a decision which affects the country.
He said: "This is a shambolic situation that affects thousands of passengers in and out of Scotland."
Sir Richard Branson criticised former Transport Secretary Justine Greening today after the government was forced to make an embarrassing U-turn on the West Coast Main Line rail franchise deal.
In an interview with Channel 4 News, the Virgin boss also claimed the Department for Transport had "certainly made the same mistake" with other bids.
The previous minister of transport [Ms Greening] should have just knocked the bid into touch some months ago but chose not to.
I don't know what went on inside the Department for Transport and whether the previous minister knew all the facts or not, but certainly we appreciate the fact they acknowledged that there were major faults in the system and they have stayed the system.
When asked if Ms Greening was "incompetent," Sir Richard replied said, "I'd rather not comment on previous ministers".
Obviously, we believe that she should have looked into the situation a bit more carefully and reached the same conclusions that have been reached today maybe some months back but that's past history now.
FirstGroup Chief Executive Tim O'Toole told ITV News he was "shocked and bitterly disappointed" that the government has cancelled its West Coast Main Line rail franchise deal.
Shares in FirstGroup plunged nearly 21 percent today after the company lost the West Coast Main Line rail franchise.
The FTSE 250-listed firm saw shares drop 20.74 percent to 193.40p, wiping more than £240 million off its value.