The future of train travel on the East Coast is set to be placed in the hands of York-based GNER - dealing Sir Richard Branson's Virgin Group its second body blow in a week.

The Shadow Strategic Rail Authority (SSRA) has told ministers of a decision over the 20-year franchise.

"The word in the corridors at Westminster is that GNER is the preferred bidder," said York MP Hugh Bayley.

The Government has yet to approve the SSRA's decision. Ministers are to make the official announcement over the valuable Anglo-Scottish franchise early in the New Year.

A spokesman for the SSRA said: "Ministers were advised over the last few days of a decision over a preferred bidder.

"The decision will not be announced until the New Year."

Virgin Rail, which is jointly owned by the Virgin Group and Stagecoach, operates the West Coast and CrossCountry routes to and from Scotland.

Virgin's bid included impressive-sounding plans to run a new £4.5 billion high-speed line, with a section of it running around York and on to Scotland.

A spokesman for GNER said: "We have had no official announcement, but the signs are encouraging.

"We have anxiously been awaiting a decision for some time, and we are looking forward to being able to bring in our ambitious plans on the line and the huge benefits there will be for passengers.

GNER's rival £3 billion package includes 25 new 140mph tilting trains and more services on the existing line.

It has said the tilters would cut the fastest York-London journey time by nine minutes to just 1 hour, 32 minutes by 2004 - with further improvements possible later if the railway infrastructure is upgraded.

GNER also has plans for a range of improvements to York station.

A spokesman for the Department of the Environment, Transport and the Regions confirmed the decision was with ministers, but added: "It is pure speculation as to who has won the bid. An announcement is due in the New Year."

Mr Bayley added: "I have supported the GNER bid from the beginning. A strong service is needed to regain passenger confidence, and GNER is the company to do that."

The news comes only two days after the National Lottery regulator's decision not to award the game's franchise to the Virgin Group, opting instead to continue with current operator Camelot.

Virgin Rail was unavailable for comment.