The Government is set to announce the Olympic Stadium deal with West Ham United and Newham Council has collapsed, Press Association understands.
Legal challenges by Tottenham Hotspur and Leyton Orient, plus an anonymous complaint to the European Commission, have led to fears that court action could drag on for years while the stadium remains empty.
A ministerial statement is expected around lunchtime, saying that the stadium will remain in public ownership and leased out to an anchor tenant following a new tender process.
It is likely that, under the new tender process, any costs of transforming the stadium after the 2012 Games will be covered by the Olympic Park Legacy Company (OPLC).
Prospective tenants will then be asked to bid for the stadium with the running track remaining in place. The tenants would pay an annual rent to the OPLC which could actually prove to be less costly for the likes of West Ham.
The Government, the London Mayor's office and the OPLC have moved to scrap the current deal in order to try to end the legal challenges over the stadium's ownership.
There has been an anonymous complaint to the European Commission, claiming that the £40 million being provided by Newham to West Ham represented "state aid". That complaint was regarded with particular concern amid fears it could take years to come to a conclusion. There were also worries that the application for a judicial review by Spurs and Orient could drag on and, even if their bids failed, they could appeal.
It is understood that no contract has been signed with West Ham United, allowing the move to a fresh tender process, but the club will be encouraged to bid again.
The move was welcomed by Ed Warner, chair of the UK Athletics board.
"I think this is a bold and decisive move by the legacy company, supported obviously by the mayor and the Government. It means that the stadium will open for athletics in the summer of 2014, which was always the plan," he told BBC Radio 4's Today programme. "They were faced with a number of legal challenges and this is the way in which they have been able to scotch all of those."