The collapse of the deal for West Ham to buy the Olympic Stadium has left a funding gap of up to £60million needed to transform the venue before it can be leased out.
The stadium will now remain in public ownership and be rented out - almost certainly to West Ham again, according to London mayor Boris Johnson - but that is likely to mean more public money used to make the changes to the venue after the 2012 Games.
The collapsed deal would have seen the £95million cost split with £35million from the Olympics budget, £20million from West Ham and £40million from Newham Council. If similar changes are to be made then only the £35million is guaranteed and a gap of £60million will have to be filled.
Olympics minister Hugh Robertson said the Government pulled the plug on the West Ham deal due to "legal paralysis" caused by court action brought by Tottenham and Leyton Orient. The biggest issue concerned an anonymous complaint to the European Commission that the £40million from Newham was effectively 'state aid' and therefore broke competition rules.
Robertson said keeping the running track in the stadium would be "non-negotiable" under the new tender process, with bids having to be in by January.
The move should now remove uncertainty over the stadium ahead of London's bid for the 2017 world athletics championships.
It was, however, condemned as "a catastrophe" by Andrew Boff, Olympic spokesman for the Conservative Group on the London Assembly, who blamed London 2012 chairman Sebastian Coe for insisting the running track be kept.
The decision came after Newham sent a letter to the Olympic Park Legacy Company (OPLC) last night saying they could not guarantee the stadium being ready for 2014. That was "the straw that broke the camel's back", according to Robertson.
The minister said the public ownership of the stadium would now allow Newham to commit that money - though they have yet to say they will do so - and that any gap would be covered by rental income.
Robertson said: "It is a little bit which way you cut it. There is £35million in the public sector funding package already for legacy conversion.
"Then you have got the £40million that Newham were prepared to commit to the original project. They can now commit that to this model without a state aid issue because it goes public body to public body.
"Then you have to get the all-round figure up to £95million and then you have a gap of £20million, which was originally going to be filled by West Ham's sale of their ground at Upton Park.
"That will be replaced by an annual rental charge by whoever the end tenant is."
Robertson and Johnson both insisted the stadium would not become a burden on the taxpayer.
The mayor said: "I think we have come up with a very good solution. We will keep it in public hands but we will effectively rent it to a football club, almost certainly West Ham, and that will cover the costs and I think it will be a very good deal for the taxpayer."
West Ham vice-chairman Karren Brady confirmed the club will bid again to become tenants at the stadium and Robertson said there were no concerns about a lack of takers for the venue.
He said: "We know there is huge interest in the stadium out there from private operators and football clubs and crucially we remove any uncertainty.
"This is not a white elephant stadium where no-one wants it. We have had two big clubs fighting tooth and nail to get it.
"The new process will be more like how Manchester City took over the Commonwealth Games stadium, which is regarded as a leading example of how to do it."
The tenants would pay an annual rent to the OPLC which should actually prove to be less costly for the likes of West Ham.
Robertson added: "This is potentially a much more attractive deal - you are able to sign a straightforward lease and not depend on a loan from Newham."
Tottenham, who announced in the summer they intend to remain in north London next to White Hart Lane, welcomed the decision to scrap the current deal with West Ham.
The club said in a statement: "We welcome the OPLC decision to end the current Olympic Stadium bid process. We firmly believe that the bid we put forward was, in fact, a realistic sporting solution for the stadium, along with a substantial return to the taxpayer, community programming and athletics provision."
UK Athletics chairman Ed Warner welcomed the announcement as "a bold and decisive move", adding: "I'm very hopeful that we will get the nod for 2017."
But Boff demanded that the running track now be scrapped.
He said: "This catastrophe is entirely down to Sebastian Coe's insistence that the stadium should retain an athletics track after the Olympics.
"Coe's masterplan has turned the Olympic legacy into the Millennium Dome Mark II but with a financial climate that gives it a less positive future."
Kim Bromley-Derry, Newham chief executive, said the Olympic legacy had been put at risk by the legal challenges.
He said: "The Olympic legacy has been put at risk by the uncertainty caused by the anonymous complaint to the European Commission and ongoing legal challenges.
"As a result of this uncertainty, Newham Council informed the OPLC that we could not maintain a commitment to achieving conversion of the stadium by the summer of 2014.
"We have never said that we did not want to proceed. We welcome the decision to introduce a new process to secure the Olympic legacy and deliver a football, athletics and community stadium by 2014. That legacy promise is still achievable but it will require quick and decisive action."