The deal to hand the West Coast Main Line rail franchise to First Group is to be delayed following a legal challenge by current operator Virgin.
Virgin launched the challenge last week after losing its attempt to continue operating the route.
Ministers were expected to sign the deal with First Group several days ago.
But they have confirmed due to the legal challenge the contract has not been signed and "the competition remains live."
Virgin has run the West Coast Main Line since 1997, but lost out to FirstGroup, prompting it to demand a review.
Labour had also urged the government to defer signing the contract so that MPs could examine it.
And more than 165,000 people have signed an online petition calling for the decision to be reconsidered.
In a written ministerial statement transport minister Theresa Villiers said: "As a result of a legal challenge, which the government intends to defend robustly, we have not yet signed the contract with First West Coast, and consequently the competition remains live. But she insisted "the commitments in First West Coast's bid represent significant improvements for passengers and will provide a good return for the taxpayer."
Virgin has made an application for a judicial review of the decision to award FirstGroup the contract, and has lodged papers at the High Court in London.
FirstGroup has said it wants to proceed "without delay or disruption" and would continue to prepare to start running the franchise on 9 December this year.
The franchise, to be run under the name First West Coast Limited, would run until 2026.
The Aberdeen-based company already operates a number of rail routes, including Great Western and ScotRail.
The West Coast Main Line route serves 31 million passengers a year travelling between London, the West Midlands, the North West, North Wales and the central belt of Scotland.
Passenger numbers have doubled since Virgin started running the franchise.