The Government has not yet signed off a new contract for the West Coast mainline rail franchise due to a challenge from Virgin.
Transport minister Theresa Villiers said "competition remains live" after it emerged the Government had not yet completed the deal with FirstGroup because of a legal challenge from Sir Richard Branson's Virgin Rail, which currently operates the route.
But she said the coalition would "robustly" defend the case following its controversial decision to award the West Coast mainline contract to rival bidders FirstGroup.
The announcement was made in a written statement to the Commons.
It 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."
Virgin Rail has accused Transport Secretary Justine Greening of acting "unlawfully", "irrationally" and against EU law by awarding the £13.3bn contract to FirstGroup.
But Ms Villiers told MPs the bid by FirstGroup would offer "significant improvements" for passengers.
She said: "The West Coast Main Line is one of the most important intercity rail passenger routes in the country and it is also a valuable public asset.
"Over the last decade and more, taxpayers have invested £9bn to upgrade the infrastructure.
"It is a profitable franchise for the current operator and after significant public investment in the line the Government is rightly seeking to get a substantial return for passengers and taxpayers."
FirstGroup's bid would provide more trains on the route, with 12,000 extra seats per day from December 2016, new services and station upgrades.
"Taken together, I believe that the commitments in First West Coast's bid represent significant improvements for passengers and will provide a good return for the taxpayer," she said.
But she added: "I cannot give the full commercial details of the winning bid, or indeed of the other bids.
"Nor is it usual or appropriate - once litigation proceedings have commenced - for the Government to comment on the detail of that, other than to say that our legal advisers are fully engaged in addressing and responding to those proceedings."
