Sir Richard Branson's company Virgin will from next year be running the UK's two main London to Scotland rail routes.
The Government announced today that a consortium involving Virgin Group and transport company Stagecoach had been chosen to operate a new eight-year East Coast franchise starting in March.
Virgin and Stagecoach already operate the West Coast main line and have promised improved services on East Coast which has been run in the public sector since 2009.
Transport Secretary Patrick McLoughlin said the new franchise was "a fantastic deal for passengers and for staff on this vital route" and would give passengers "more seats, more services and new trains".
But shadow transport secretary Michael Dugher said the travelling public had been "sold down the river" and added that he had written to the Department for Transport's permanent secretary asking him to postpone the East Coast franchise process.
Transport unions, upset that East Coast has not remained in the public sector, described the franchise announcement as "an utter betrayal" and an example of "sheer political spite".
There had been speculation that a consortium of Eurotunnel and French company Keolis, which is 70% owned by French state railway SNCF, had been chosen as the new East Coast operator.
But Eurotunnel/Keolis missed out, as has the other shortlisted bidder, FirstGroup, which has recently also lost its First Capital Connect and ScotRail franchises.
The new East Coast company will be called Inter City Railways.
Under the terms of the eight-year franchise there will be:
:: 23 new services from London to key destinations, with 75 more station calls a day
:: Plans for direct links to Huddersfield, Sunderland, Middlesbrough, Dewsbury and Thornaby
:: Proposals for more trains to London from Bradford, Edinburgh, Harrogate, Leeds, Lincoln, Newcastle, Shipley, Stirling and York
:: 3,100 extra seats for the morning peak time by 2020
:: Across the entire train fleet there will be 12,200 additional seats - a 50% increase
:: 65 state-of-the-art Intercity Express trains brought into passenger service from 2018, totalling 500 new carriages
:: Journey times from London to Leeds reduced by 14 minutes, and from London to Edinburgh by 13 minutes
:: A £140 million investment package to improve trains and stations
Over the next eight years Inter City Railways will pay the Government around £3.3 billion to operate the franchise.
Mr McLoughlin said: "We are putting passengers at the heart of the service. I believe Stagecoach and Virgin will not only deliver for customers but also for the British taxpayer.
"This Government knows the importance of our railways. That is why they are a vital part of our long-term economic plan, with over £38 billion being spent on the network over the next five years."
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Stagecoach group chief executive Martin Griffiths said: "A passion for customers, employees and the community is at the heart of our plans for the franchise. We want to build on the quality and pride of the people who will be joining our team."
Virgin Group senior partner Patrick McCall said: "We're delighted to have been chosen. Our long-term partnership with Stagecoach has seen a revolution in customer service standards, great product innovation, reduced journey times and improved timetables on the West Coast mainline.
"We plan to deliver similar success on the East Coast."
Mr Dugher said: "The taxpayer and the travelling public have been sold down the river. This whole franchise process shouldn't have happened.
"East Coast has ... established itself as one of the best train operating companies in the country. Rather than rigging the franchise timetable in order to sell it off before the election, David Cameron's Government should have been putting the public interest first and working to get a better deal for passengers."
He added: "It's absurd that our own public operator is the only rail company in the world that has been barred from challenging to run its own services, on the ideological grounds that it is British and publicly owned."
National Express's pull-out from the East Coast franchise had been preceded by the withdrawal of another private sector operator of the line, GNER.
Mick Cash, general secretary of the RMT union, said the reprivatisation of the line was "a national disgrace and an act of utter betrayal".
He added: "It is simply ludicrous to even contemplate reprivatisation when not only have there been two previous private sector failures on the East Coast route but when the public sector rescue operation has been such a stunning success."
FirstGroup chief executive Tim O'Toole said: "Our bid for the East Coast franchise was ambitious yet realistic. Had it been selected, it would have created a world-class railway for passengers and value for taxpayers with a balanced level of risk and returns for shareholders.
"As one of the UK's most experienced operators, we remain committed to the rail market but we are dissatisfied not to have secured any of the franchises that have come up for tender in this first round."
In early trading Stagecoach shares were up 8%, while FirstGroup's were down 5%.
David Sidebottom, passenger director at rail customer watchdog Passenger Focus, said: "Passengers travelling on the East Coast will welcome knowing who will be running their services from March. Inter City Railways will inherit a business that passengers tell us they rate highly, but there is still room for improvement.
"What passengers will want now is to hear how the improvements announced today will affect their journeys."
Mr Dugher has been granted permission to ask an urgent question on the East Coast line in the House of Commons at about 10.30am.
Len McCluskey, the Unite general secretary, said: "This nakedly political decision to rush through this reprivatisation before the general election is a betrayal of the taxpayers and staff who have made East Coast a success.
"Rail privatisation has spectacularly failed both taxpayers and the travelling public. Rather than one that has glued itself to a failed dogma, we need a government that puts the people and our national bank balance first."
Today's decision effectively gives Virgin/Stagecoach a monopoly of the two main London to Scotland routes.
In his foreword to the East Coast prospectus published in October last year Mr McLoughlin said: "We want to see a revitalised East Coast railway; one that rekindles the spirit of competition for customers on this great route to Scotland and competes with the West Coast on speed, quality and customer service."
Mick Whelan, general secretary of the train drivers' union Aslef, said: "Today's announcement is a hugely disappointing and short-sighted decision which puts dogma ahead of all right thinking and common sense.
"The East Coast has delivered excellent value and service for both passengers and taxpayers in the public sector over the last five years. All of this is now lost."
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