Private security giants G4S and Serco have been stripped of all responsibilities for electronically tagging criminals in the wake of allegations that the firms overcharged taxpayers.
Monitoring contracts will be handed over to rival Capita on an interim basis at the end of the financial year.
Capita is bidding to win the contracts permanently.
Other bidders include Buddi, Astrium and Spanish telecommunications giant Telefonica. Permanent contracts for GPS tagging are expected to be awarded next year.
"We have signed a contract with Capita to take over the management of the existing electronic monitoring services on an interim basis,” said Justice Secretary Chris Grayling in a statement.
"This will mean that management of these services, which are now operated by G4S and Serco, will transition to Capita by the end of the current financial year.”
Capita will continue to use equipment from Serco and G4S.
Both companies withdrew from competition for future tagging contracts, which were due to expire at the end of March.
"Under these arrangements, Capita will be using the systems and equipment of G4S and Serco, but the two companies will no longer have a direct role in delivering the service on the ground."
G4S and Serco are currently being investigated by the Serious Fraud Office (SFO) after an audit by PricewaterhouseCoopers suggested that both firms overcharged taxpayers for tagging criminals who were dead, in jail or overseas.
The Ministry of Justice revealed that the government was overcharged "tens of millions of pounds" in botched contracts stretching back to 2005.
G4S has apologised for overcharging taxpayers and offered to repay £24 million as Chief Executive Ashley Almanza admitted that the company failed to "tell the difference between right and wrong".
The Ministry of Justice rejected the offer.