Avanti West Coast has been given an ultimatum by the Transport Secretary to "drastically improve services" or be stripped of its contract.
Anne-Marie Trevelyan handed the crisis-hit operator a six-month reprieve during which bosses were told to sort out “unacceptable” service levels.
Avanti, a joint venture between British firm FirstGroup and Italian state firm Trenitalia, was forced to cut two-thirds of services earlier this year following an industrial dispute with drivers.
Bosses have vowed to improve service levels over the coming months.
Ms Trevelyan resisted calls to nationalise the line, on which some initial HS2 services will run in years to come. A contract that was due to expire on October 16 has now been extended until the end of March 2023.
She said: “We need train services which are reliable and resilient to modern day life. Services on Avanti have been unacceptable and while the company has taken positive steps to get more trains moving, it must do more to deliver certainty of service to its passengers.
“We have agreed a six-month extension to Avanti to assess whether it is capable of running this crucial route to a standard passengers deserve and expect.”
Andy Burnham, the mayor of Greater Manchester, has been among those urging the Government to step in if services do not improve quickly.
Labour MP Louise Haigh, shadow transport secretary, said Ms Trevelyan’s decision “is a reward for abject failure, and a slap in the face for passengers".
"This failing operator has caused travel misery, and the Government's answer is to hand over millions more in taxpayers' cash and consign passengers to another six months of chaos," she added.
"If the Government had any interest in doing their job, they would strip this failing operator of the contract, and finally put passengers first.
"This chaotic short-term decision making is precisely what has held back long-term planning on the rail network. That's why Labour would bring our railways into public ownership as contracts expire."
Graham Sutherland, chief executive of FirstGroup said the reprieve from ministers would allow staff to “sustain their focus on delivering their robust plan to restore services to the levels that passengers rightly expect”.