The Government has secured the future of the Post Office under a 10-year deal giving certainty to postmasters, ministers announced today.
The long-term arrangements between the Post Office and the Royal Mail will be reached before the two are separated under the Government's controversial privatisation plans.
Sub-postmasters welcomed the move, but the Communication Workers Union said it was the end of an era for a fully publicly-owned postal service.
Postal Affairs Minister Edward Davey said: "On coming to office, we found a demoralised Post Office, still losing substantial sums despite years of cutbacks and closures.
"So, a year ago, I set out a radical plan to transform Post Office's future, with £1.34 billion of Government support and investment but without any closure programmes.
"Since then the Post Office has made good progress to become more competitive, building on its strengths.
"While it will take several years to turn round the Post Office's finances, it's increasingly clear the reforms are beginning to work.
"Concerns people had about the Post Office becoming independent from Royal Mail were always misplaced as that separation is part of our cure, but the 10-year deal struck between Royal Mail and the Post Office will give sub-postmasters and others greater confidence.
"Coupled with winning new contracts and the successful pilots of new operating models, the signs are extremely encouraging for the future of the Post Office."
Moya Greene, Royal Mail Group's chief executive, said: "I am delighted with this agreement.
"It provides a firm foundation for the Post Office's long-term, sustainable future and ensures Royal Mail's customers continue to get access to postal services in Post Office branches nationwide, the UK's biggest retail network.
"Royal Mail and the Post Office have reached an agreement that is in the best interests of our customers and both businesses.
"The Post Office will continue to benefit from the sale of stamps and other delivery services.
"For Royal Mail, the business retains the current, unrivalled, UK-wide, retail distribution network for its products and services aimed at consumers and small businesses.
"We look forward to a new chapter in our continuing, close relationship."
Paula Vennells, managing director of Post Office Ltd, said: "This is a good agreement for the Post Office, for the millions of customers a day who visit our branches and for our sub-postmasters.
"We are the number one mails retailer in the UK and postal business accounts for a third of our income.
"A long-term relationship with Royal Mail ensures we continue to provide the unrivalled access and great customer service in mails and parcels services, which individuals and business customers want from the Post Office."
National Federation of SubPostmasters general secretary George Thomson said: "Sub-postmasters will welcome the security which this news brings, which will help provide them with the confidence necessary to invest in their businesses for the future.
"The NFSP has been calling for a minimum 10-year inter-business agreement since plans for Royal Mail privatisation and the separation of the two companies were announced, and we have worked tirelessly to achieve it.
"Without this deal, sub-postmasters would have faced even greater difficulties in running their businesses and continuing to provide vital services to their communities."
The Government is pressing ahead with plans to privatise the Royal Mail arm of the business.
Billy Hayes, general secretary of the Communication Workers Union, said: "This announcement paves the way for the end of the Post Office as we know it. It's the end of an era and an unprecedented step by the Government - we're not aware of any other country which has severed the retail post office network away from the main mails, deliveries and logistics part of the business.
"When people think of the Post Office they think of the whole mail network from post office to postman, sorting and delivery - but not any more.
"Ed Davey's optimism is of course welcome but we think it is too early to claim success for an initiative which is untested, unprecedented in global postal industries and which has many uncertainties ahead - mutualisation for example."
Mike O'Connor, chief executive of Consumer Focus, said: "An agreement of this duration is important to support the long-term sustainability of the network and the viability of Post Office Ltd after it splits off from the Royal Mail Group.
"Mail accounts for one third of Post Office revenues and therefore is a key part of the jigsaw in maintaining a strong and healthy Post Office, delivering those services that consumers expect. This deal helps provide firm foundations for the Post Office network's future.
"Over the next few years, there is the opportunity to build on this arrangement by ensuring that Post Offices deliver the widest range of services in the most convenient ways, while at the same time broadening the range of services available from the network.
"The fact is that the Post Office is changing - banking and Government services are its future."