Richard Branson's Virgin Rail Group on Monday succeeded in holding up a deal that threatens to strip it of its British rail franchise.
Virgin Rail launched a legal challenge last month after losing the long-term deal with the British government to run the major West Coast Main Line railway from London to Glasgow to rival FirstGroup.
The Department for Transport had earlier said that the legal move was "no reason" to delay the new contract signing -- due to take place on Tuesday -- but on Monday backtracked and accepted that the competition for the 13-year franchise remains alive.
"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" transport minister Theresa Villiers said in a written statement.
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 argues that it was left with no choice but to commence legal proceedings as it believes the procurement process had "ignored the substantial risks to taxpayers and customers.
"The current process is geared to selecting the highest-risk bid and needs to be independently audited to prevent a repeat of former franchise failures," it added.
More than 100,000 people have signed an online petition calling for the decision to take the franchise from Virgin to be reconsidered.
Labour lawmaker Maria Eagle, the shadow transport secretary, said there were concerns over how the new contract would affect fares and levels of service and called on the government to allow parliament time to consider the deal.
Virgin Rail -- 51-percent owned by Virgin Group and 49-percent by transport firm Stagecoach -- has been running the route since 1997, during which time it introduced tilting high-speed Pendolino trains and more than doubled passenger numbers.
FirstGroup is set to begin services between England and Scotland from December but Branson on Sunday offered to run the line for free to allow the government time to review what he called an "outrageous" decision.
FirstGroup will have to pay back £5.5 billion ($8.6 billion, 7.0 billion euros) to the government in premiums over the life of the franchise and Branson has claimed that their bid will lead to "almost certain bankruptcy".