Virgin Trains will carry on running services on the West Coast main line for a further 23 months, it has been announced.
Virgin had been set to lose the West Coast franchise it has operated since 1997.
But the government scrapped the bidding after Department for Transport (DfT) faults were found with the bidding process.
The temporary deal, announced by Transport Secretary Patrick McLoughlin, will see Virgin carry on with the London to Scotland route until November 9, 2014, after which the West Coast line will be let under a long-term franchise.
Mr McLoughlin said: "We are determined to ensure not only that passengers continue to experience the same levels of service they have in the past, but that services improve.
There will be a new hourly service linking Glasgow and London and we will also work with Virgin Trains to explore other service improvements."
The government also announced that the DfT would be able to shorten the 23-month period "by up to six months if a subsequent franchise can be let on a shorter timescale".
Virgin had high hopes of extending its long tenure on West Coast when bids were invited for a new 13-year franchise which was due to start on December 9 this year.
But in August the DfT announced the new franchise had gone not to Virgin but to rival transport company FirstGroup.
It was only after Sir Richard, who had branded the bidding process "insane", mounted a legal challenge to the decision that Mr McLoughlin scrapped the bidding process, saying there had been mistakes by the DfT.
Three DfT officials were suspended and negotiations were started with a view to getting Virgin to run the line for between nine and 13 months before a short interim franchise was offered followed by a longer one later.
Transport company Stagecoach, which has a 49 per cent stake in Virgin Rail, said that under the new agreement, Virgin will initially earn a fee equivalent to 1 per cent of revenue with the DfT taking the risk that revenue and/or costs differ from those currently expected.
Stagecoach finance director Martin Griffiths said: "This is a good deal for passengers and taxpayers, as well as our business and Virgin Trains' employees.
"It will ensure customers continue to benefit from the best customer service on the UK rail network and it brings continuity for our people.
"Our agreement also gives value for money to taxpayers and an appropriate return to the shareholders whose private investment underpins Britain's rail system."