The next NorthLink ferries contract will go out to competitive tender next month rather than be awarded to a public sector operator, transport minister Humza Yousaf announced to MSPs today.
He said the move was what most islanders wanted, and to comply with current European law
The winner of the services to Orkney and Shetland - currently operated by Serco - is due to be chosen next summer.
But none of the opposition parties were happy at the news.
The Tories said the minister's hand had been forced by the European Commission and the Liberal Democrats said the decision should have been made quicker.
Labour and the Greens described it as a missed opportunity to nationalise the service.
However, Mr Yousaf says he would ultimately like to award the contract to an "in-house" operator.
He also hopes to do that for the next CalMac contract and to also enable a public sector bid for the next ScotRail franchise.
Mr Yousaf said: "We have always said we would take the views of the local community into account when it came to the procurement of the next Northern Isles ferry services contract.
"Through the consultation process, it’s become clear the preference of the local communities is for this contract to be put out to tender, rather than a direct award to an in-house operator.
"In addition, the latest correspondence from the European Commission means satisfying European Law for a direct award will take us beyond the currently extended Northern Isles contract.
“As a result, we will start the tender process next month in order to allow enough time to complete this high value and complex procurement, ensuring that communities and businesses have the certainty they need.
Delaying this any further would put the continued delivery of ferry services at risk, something I am not prepared to do.
“The decision to tender the Northern Isles contract does not change my position on the future approach to be taken for the next Clyde and Hebrides [CalMac] contract.
"I remain minded to make direct award to CalMac if we can satisfy all the necessary criteria.”
Scottish Conservatives transport spokesman Jamie Greene criticised the government's "obsession" with nationalisation.
He said: "If users of the service in Orkney and Shetland have little appetite for this nationalised and centrally-controlled service, why does the minister insist on dogmatically pursuing that agenda?"
But Scottish Labour transport spokesman Colin Smyth said: "For the SNP Transport Minister to not even state if he will ensure there is a public sector bid in his own tender process is disgraceful.
"“His refusal to back a bid comes days after he said he was ‘agnostic’ over the public ownership of the east coast main line railway."
Scottish Greens transport and islands spokesman John Finnie said he was “bitterly disappointed”
He said: "The Scottish Government has missed a real opportunity to deliver a publicly owned service, run in the interest of communities in Orkney and Shetland.
"Instead the service will continue to be run for the benefit of private shareholders.
“If this is the direction of travel from the Scottish Government then it is extremely concerning and brings into question how serious it is about bringing forward public bids for other major transport services such as ScotRail."
Shetland Liberal Democrat MSP Tavish Scott said: “This is the right decision. But the government should have made it much quicker."
Mick Cash, general secretary of the Rail, Maritime and Transport union, which represents many NorthLink staff, said: "We will continue the fight to release lifeline Scottish ferry services from the pro-private restrictions of EU tendering requirements and for full protection of our members’ jobs, pensions and terms and conditions as we enter another expensive and unnecessary tendering process."