The Northern Rail franchise will only be able to continue “for a number of months” according to recent financial information, the Transport Secretary Grant Shapps said.
The cabinet minister announced he was currently evaluating a proposal from the train operator on options for continuing its franchise.
"Following completion of this process I will consider whether to award ARN (Arriva Rail North) a short-term management contract or whether to ask the Department of Transport's own operator of last resort to step in and deliver passenger services," he explained.
Longer-term decisions on the franchise will be made in the light of recommendations of the Williams Rail Review, expected to be published shortly.
Chris Burchell, Arriva's managing director of UK Trains, said he accepted Northern network services were "not yet good enough".
He continued: "Many of the issues affecting the franchise however are outside the direct control of Northern. Assumptions were given when the plan for the franchise was developed that critical infrastructure projects would be delivered to enable growth and support capacity demands.
"Many of these have either been delayed or cancelled. This, along with unprecedented levels of strike action, has had a significant impact on the franchise - both in terms of service and financial performance.
"These challenges will continue to affect services irrespective of who is running them."
Mr Shapps said day-to-day operations would not be affected, and that services would continue to run as usual.