Plans to put three South Yorkshire prisons into private hands have been dropped amid an investigation into Serco's contracts with the Government.
Justice Secretary Chris Grayling said "uncertainty" created by the investigation into the firm - the leading bidder to operate Hatfield, Moorland and Lindholme prisons - meant the process was being cancelled.
In a written statement to MPs, Mr Grayling said: "The House will recall that I made an announcement on July 11, 2013, where I outlined that the leading bidder for these prisons was Serco, but that the award of this contract would be delayed as a result of the investigations into Serco's operations. The investigations remain ongoing.
"The impact of the delay and the uncertainty this has created mean that for operational reasons we cannot postpone the outcome of the competition process any further.
The Justice Secretary says the jails will remain in Prison Sevice hands "I have therefore decided that the competition for these prisons will cease and that all three prisons will be managed by HM Prison Service."
A Serious Fraud Office investigation is looking at allegations that Serco and security giant G4S overcharged the Government for tagging offenders, some of whom were dead or abroad.
Serco has lost a third of its value on the FTSE 100 Index - equal to £1.3bn - since the disclosures about the tagging contracts surfaced in July.
The company's chairman, Alistair Lyons, told the Commons Public Accounts Committee this week that it was"ethically wrong" that Serco had overcharged the Ministry of Justice.
Former Serco boss Chris Hyman resigned in October Both firms have been barred from winning new government contracts pending a wider review of their operations.
Serco said it understood that the "urgent need for change at these prisons means that the typical six-month period of mobilisation and transition to the private sector would not be in the best operational interest of the prisons".
Acting group chief executive Ed Casey, who took on the role after Christopher Hyman resigned last month, said: "From meetings with the UK Government, it is clear that the operational needs of the prisons will be best served by the necessary changes being implemented without further delay.
"We are also continuing to make good progress across the various audits, reviews and our proposed corporate renewal programme within the timing previously communicated by Government."
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