Labour’s Paula Sherriff joked it would be “Virgin on the ridiculous” if the companies were allowed to be involved in the key route, which runs between Edinburgh and King’s Cross, in future.
Transport Secretary Mr Grayling said the Dewsbury MP appeared to have “misunderstood” the Government’s plans for 2020 onwards, with a public-private partnership in development.
He added it is “not a question of who is and is not allowed to bid” as the process has yet to be decided.
Virgin and Stagecoach had agreed to pay the Government £3.3 billion to run the service over eight years until 2023, but it was announced in November that a new East Coast Partnership will take on responsibility for intercity trains and track operations on the route in 2020.
Mr Grayling was urged not to sneak out an announcement about the short-term measures until 2020, in which he confirmed preparations are continuing - including the option of temporarily returning it to public ownership.
He also claimed it was a “problem of not enough success, not of a lack of success” for Virgin Trains East Coast.
Mr Grayling’s remarks came after he opened the bidding process for rail operators who will help plan the first trains on HS2.
He appeared in the Commons to outline how the new operators on the West Coast mainline will play a key role in Britain’s new £55.7 billion high-speed line.
Labour called the announcement “thin gruel” and said the Government lacked a strategy for the railways.
Speaking during questions after the announcement, Ms Sherriff said: “Can the Secretary of State confirm that Virgin Stagecoach will be allowed to rebid for the East Coast franchise when that contract is put out to tender once again, because it does appear to be Virgin on the ridiculous.”
MPs groaned before Mr Grayling replied: “I think you have misunderstood our plans. From 2020 on the East Coast mainline we’re going to do things completely differently.
“It’s not going to be a current-style bidding process. We’re shaping a public-private partnership.
“It may be a public-private partnership that brings investment in digital rail, it may have a completely different corporate structure to it.
“So we’re working through that longer-term plan while preparing to put in place the intermediate arrangements.
“It’s not a question of who is and is not allowed to bid, we have not even decided what the process is going to be.”
Labour’s Mary Creagh, a former shadow transport secretary, earlier asked: “Can he tell the House what he is doing to get that East Coast mainline franchise back on track, delivering for passengers, staff and taxpayers, and can he make sure there is no announcement snuck out in the middle of recess?”
Mr Grayling replied he had said repeatedly he would return to the Commons to make an announcement when he is ready to do so, adding: “We have been preparing, as I’ve said in this House before, the alternative operator of the last resort for some months. When we’re reading to take this forward I will come forward and say so.
“But she makes the comparison with what was there previously - I’d simply remind her that notwithstanding the financial problems in that franchise, it’s today running more trains, it’s employing more people, has a higher level of passenger satisfaction and is delivering more money to the taxpayer.
“So this is a problem of not enough success, not of a lack of success.”
Rachel Reeves, Labour MP for Leeds West, asked: “Can the Secretary of State tell us when a decision is coming, whether there will be penalties for Virgin Stagecoach walking away from that contract, and whether he’ll keep on the table the very sensible option of bringing this back into public ownership?”
Mr Grayling replied: “I’ve said very clearly that I’m not simply evaluating but also preparing for two options, one of which is an operator of last resort controlled by my department, the other is not-for-
profit direct award.”
He said a decision will be announced to MPs “shortly”, adding it was important to ensure whichever option he chooses is “ready to happen”.
Mr Grayling went on: “It’s as much about preparation as it is about deciding.”
On his earlier announcement, Mr Grayling told MPs: “What I’m setting in train today for the West Coast partnership are plans to keep industry-leading services on the West Coast until HS2 enters operation.
“To ensure that the first HS2 services are delivered with the help of an experienced operator that’s been working hard to plan for their introduction.
“And to use this approach to help inform decisions on what the final future shape of the organisation should be.”
Mr Grayling said the partner on the West Coast mainline will operate the route until 2031.
Express services will start to move off the increasingly congested West Coast line on to HS2 after 2026, he added.
Shadow transport minister Rachael Maskell said she was “perplexed” that Mr Grayling had felt the need to announce “a set of administrative arrangements”.