Ministers are set to take the unprecedented step of staging a direct takeover of Hackney council's education department and handing its functions to a team of external consultants.
David Blunkett, the Secretary of State for Education, is likely to invite private firms and neighbouring councils to bid for the management of the troubled north-east London authority.
Teaching unions will object to what they see as the UK's first "privatisation" of state education, but Whitehall sources say the radical initiative will prove the Government's policy of "zero tolerance" of failure in schools.
The move will follow the publication later this month of what is understood to be a highly critical report by inspectors from the Office for Standards in Education into the local education authority's running of its 73 schools.
Hackney claims its schools have improved since Ofsted was first sent in last year and a government "help squad" arrived. But the latest inspection shows that the authority is still way below standard.
Ministers believe the council's progress has been far too slow and are determined to take action to "rescue" the borough's 73,000 pupils.
They are also furious that Hackney has persisted with its unusual executive management structure which means it is the only council in the country whose education director is not among the most senior officers.
Chris Woodhead, Ofsted's chief inspector, will receive the latest report on 16 March and Mr Blunkett is likely to announce plans for a takeover the same day or soon after. He will reveal on 1 April the list of approved contractors.
Hackney's GCSE results are among the worst in the UK, with just 26.5 per cent of its pupils achieving five or more A to C grades.
The council, which has been dogged by political in-fighting and has no party in control, points to new figures showing it has the most improved key stage two test results for 11-year-olds, and the fact that one of its schools is now a "beacon school". "We've done everything that was asked of us," a council source said.