The Transport Secretary has been attacked for announcing an extended contract for Virgin Trains to run services on the West Coast Mainline.
Chris Grayling told the Commons that a "direct award" was being made to Virgin to run services on the West Coast for an extra year.
The franchise had been due to end in April, but the Government has previously announced that Virgin will run services until April next year before a new franchise was expected to be created to run the West Coast and HS2 services when the high speed line is built in 2026.
Tory Iain Stewart said the West Coast mainline was a "vital" railway service for his Milton Keynes South constituency.
He asked: "Could (Mr Grayling) say a little bit more about the duration of this direct award and what additional features that my constituents can expect to see during it.
Mr Grayling replied: "My expectation is this will last no more than two years, possibly only one year.
"It's important to get the West Coast partnership structure in place to go through the bidding process. We will be shortly issuing the ITT. (Invitation To Tender)"
Mr Grayling has been criticised for his handling of Virgin's East Coast franchise, which is ending in 2020, three years early.
The National Audit Office has announced it will investigate the Government's handling of the franchise, which is a joint venture between Virgin and Stagecoach.
Ministers have said any suggestion taxpayers would be out of pocket was wrong.
Mick Whelan, leader of the train drivers' union Aslef, said: "It is outrageous that Virgin Trains has been handed a lucrative new contract to run services on the west coast main line despite serious criticism of its owners' handling of the east coast franchise.
"And it is outrageous that this government - committed, as it says it is, to free and fair competition - doesn't go through a proper tendering process but simply hands out a contract extension to its chums.
"No wonder Richard Branson is smiling. He's got this government where he wants it. He treats Chris Grayling as his little pet lap dog. Why keep a dog and fetch the stick yourself? Branson and Virgin have Chris Grayling and the DfT to fetch it for them.
Lord Adonis, who stepped down last year as chairman of the National Infrastructure Commission, tweeted: "Awaiting parliamentary statement about next Grayling rail bailouts at 5.45 - deliberately after the markets have closed. Prepare for another big row about Branson, Souter et al."
Mr Grayling told MPs that Stagecoach had "got its sums wrong" over the East Coast franchise, was set to lose almost £200 million and would only be allowed to run the service on a not-for-profit, short-term basis.
Mr Grayling told MPs that the East Coast franchise had "breached a key financial covenant."
The options were for Stagecoach to continue running services on a short-term, not-for-profit basis, or for the line to be directly operated by the Department for Transport through an "operator of last resort."
The minister said that having previously announced that the franchise will run out of money and not last until 2020, the situation was now "much more urgent."
He said: "It is now clear that this franchise will only be able to continue in its current form for a matter of a very small number of months and no more.
"It's important to be clear with the House, this will not impact on the railway's day-to-day operations. The business will continue to operate as usual with no impact on services or staff on the East Coast.
"But it does mean I will need to - in the very near future - end the contract and put in place a successor arrangement to operate this railway.
"Given the imminent financial pressure the existing franchise is under, I am taking action now to protect passengers who depend on these train services and ensure continued value for money for taxpayers.
"Contrary to widespread speculation, no deal has been done and I have not yet made a decision on the successor operator to run the East Coast railway until the long-term plans for the integration of track and train can begin in 2020.
"There is no question of anyone receiving a bailout. Stagecoach will be held to all of its contractual obligations in full.
"To anyone who thinks that the nearly £200 million that Stagecoach will lose is insignificant, let me put it into some context.
"The combined profit of every single train operator in the country was only £271 million last year.
"The loss equates to over 20% of Stagecoach's total market value. So it is a significant amount of money by any measure, and it should also act as a stark warning to any company tempted to over-bid in future.
"Moreover, the franchising system has been adjusted to further deter over optimism when bidding.
"The priority now is to ensure the continued smooth running of the East Coast franchise for its passengers.
"I have therefore asked my officials to conduct a full appraisal of the options available to the Government to ensure continuity of service until we implement the East Coast Partnership on the route from 2020. "
Mick Cash, leader of the Rail, Maritime and Transport union, said: "This shameful fiasco on one of Britain's main rail routes needs to end and it needs to end now.
"RMT warned that taking the East Coast lines out of the hands of the successful p?ublic sector operation and handing them back to the private speculators and spivs was a disaster in the making and we have been proved right.
"East Coast should be renationalised with immediate effect and the scale of the scandal unveiled today should mark the point at which the whole rotten business of rail privatisation in Britain was called to a halt.
"RMT is demanding immediate assurances that the thousands of rail workers caught in the crossfire of this chaos will have their jobs and working conditions fully protected and underwritten.
"Chris Grayling and the Tory Government have turned transport in Britain, the nation that gave the railways to the world, into a global laughing stock.
"He is a specialist in failure of the highest order and should resign."
Mr Grayling also announced that Abellio, Arriva, Stagecoach (the current incumbent) and a joint venture between First and Trenitalia have been shortlisted to run the East Midlands franchise.
"As I have previously said, the Government has no adequate legal grounds to restrict Stagecoach from bidding.
"But the competition will be run on a fair, transparent basis, including new safeguards against overbidding. Ultimately, the winner will be the firm that offers the best service to passengers and best value to the taxpayer," he said.
Shadow transport secretary Andy McDonald said: "That Chris Grayling awarded a profitable contract to Virgin and Stagecoach on the West Coast while simultaneously confirming the same companies have collapsed on the East Coast shows Government policy is in chaos.
"This is yet another Tory handout to private shareholders at the public's expense.
"Failing train companies should not be awarded future contracts, but this Government is rewarding them for failure by extending their lucrative deal.
"The Transport Secretary's failure to stand up to Virgin and Stagecoach is a disgrace. He's supposed to protect taxpayers' interests, not sacrifice them to private shareholders.
"The system is broken which is why Labour will act in the public interest by taking our railways back into public ownership."