Rail services on routes operated by Northern will be brought under public control.
In a written statement to Parliament, Transport Secretary Grant Shapps said that from March 1 the Northern franchise would be taken into public ownership and the Government will begin operating services through the so-called operator of last resort.
He said the new public sector operator would be "a company entirely owned by my Department and run by experienced railway managers".
The decision follows months of poor performance by the operator, leading to delays and cancelled trains becoming commonplace for passengers across the North.
Mr Shapps said: "This is a new beginning for Northern, but it is only a beginning. Northern's network is huge and complex, some of the things which are wrong are not going to be quick or easy to put right. Nonetheless, I am determined that Northern passengers see real and tangible improvements across the network as soon as possible."
He promised that in Yorkshire the hated 1980s' Pacer trains will be gone by the spring and that next year electric trains will be moved to the North from elsewhere in the network, boosting capacity for commuters in Leeds and Manchester.
New technology will be trialled to identify "crowding pinch points" and platforms at 30 stations across the Northern network would be extended to allow for longer trains.
All Northern's trains will be deep-cleaned, said Mr Shapps, and the Government will review the cleaning pattern "to make sure the first and last passengers travel on trains in the same condition".
Mr Shapps said that many of Northern's problems were due to inadequate infrastructure and that the leaders of the public sector operator would sit down with Network Rail "and build a comprehensive new masterplan to review congestion around Manchester".
This work "will complement the work already ongoing to develop an ambitious package of enhancement works at Leeds Station", he said.
Mr Shapps said: "The action we're taking today is in no way a reflection on Northern's dedicated and hard-working staff. Staff have had an incredibly tough job to do in challenging circumstances.
"I want to reassure them that their jobs are safe and they will be transferred to the public-sector operator on their existing terms and conditions. I recognise that many of the staff facilities are not up to scratch and have asked the public-sector operator to look closely at making improvements.
"I would also like to be clear that the only differences passengers should notice is services gradually starting to get better. All tickets, including season tickets, will still be still valid.
"Today’s announcement will inevitably raise questions about the future of rail privatisation. Over the past twenty years privatisation has reversed over two decades of declining passenger numbers and passenger journeys have almost doubled to nearly 2 billion.
"However, it is clear that the current model is now struggling to deliver. Across the country a number of franchises are failing to provide the reliable services that passengers require. We know change is needed, and it is coming. The Williams Review is looking at reforms across the railway to ensure customers are at the heart of the system.
"The railways were invented in the North of England and last year the Prime Minister promised that we would give the railway back to the places it was born. With local leaders having more power over local services, timetables, fares and stations. Today marks the first small step in that journey.
"The first step towards the north taking back control of its railways and its people taking back control of their travelling lives, and its economy being strengthened rather than weakened by its transport network."
Labour Leeds West MP, Rachel Reeves, said: “The Department of Transport has created a new company to run the North’s trains but the Secretary of State has not made a statement to Parliament or answered questions on stripping Arriva of their franchise.
“My constituents, including commuters and staff at Northern Rail, deserve to hear what Shapps has planned. Will he finish the missing infrastructure, from the Castlefield Corridor to Leeds station, will he invest in the extra rolling stock we need and how many extra new trains is he commuting to buy?
“Passengers in the north do not want more second hand trains or to be treated as second class citizens by this government. We want trains that are frequent, affordable, reliable and where you have a chance of getting a seat. It’s not too much to ask.
"Transport investment should now be levelled up to the spending in London and a decade of under investment must be reversed.”
The Transport Salaried Staffs' Association has welcomed the announcement.
Manuel Cortes said: “I’m glad that at last Grant Shapps has agreed with our union that the Northern franchise has run out of rail. The only question is – what took him and this Tory government so long at act?
“It was clear even before the timetabling chaos across the North of England in 2018 that Northern was a basket case.
“Since then things have gone backwards, cancellations remain commonplace, with few services running on time and of late we’ve seen another spate of timetabling problems.
“It’s time the government understood that the franchising of our railways – while stuffing the mouths of shareholders with gold - has completely failed.
“No doubt we are likely to be here again in the not too distant future, with the Department for Transport recently indicating that South Western Railway is not sustainable in the long-term.
“The Northern announcement is further confirmation that the taxpayer, as so-called Operator of Last Resort, is actually the Operator of First Choice. Public railways are hugely popular with passengers and this Tory government would do well to listen to those voices.
“Frankly the only way to turn this mess around is to create a system in our country which works for passengers rather than profiteers right across the board. That means ending the Frankenstein experiment of private railways once and for all.”
Yvette Cooper, Labour MP for Normanton, Pontefract, Castleford and Knottingley, and chair of the Home Affairs Committee, tweeted: "About time. Delays & cancellations under Northern Rail have been getting worse and worse and worse.
"But Govt also needs a proper plan to invest in our northern railways, trains and stations so we get a fair deal."
Henri Murison, Northern Powerhouse Partnership Director said: “In stripping Northern of their franchise in favour of a return to public ownership under the Department for Transport’s Operator of Last Resort, the Transport Secretary is dealing with the symptoms, but not necessarily the root causes of the problems on our railways, which relate to infrastructure – and his absence from the House of Commons to make a statement in person and answer questions today is frankly unacceptable and will not have gone unnoticed amongst many Northern business and civic leaders.
“We are still waiting for Platform Zero at Leeds station – two years late and a building site – with other delayed work meaning longer trains and more frequent services cannot been delivered to Harrogate, Skipton and Bradford for instance.
"Issues getting trains through the Castlefield Corridor. Payments made by Northern for poor performance ringfenced for improvement projects that have been held up in Whitehall.
"The problems, performance wise and financially since the May timetable debacle, all the result of promises made to build infrastructure made by the Department of Transport during the bidding process, but never actually delivered on.
"Other train operators such as Trans Pennine Express should now consider themselves ‘on notice’ for their unacceptable performance levels last month, with their issues more clearly a result of their own mismanagement.
“While the forthcoming Williams review will rightly address issues with the franchising process in the North, government should urgently act to undertake the engineering works needed to allow operators to run services more effectively, as well as get started with the £3 billion long awaited Trans Pennine Route Upgrade which is essential.
"Otherwise we risk a situation where the North faces years more misery on its rail network – regardless of who runs the trains. The only permanent solution is to give the oversight of both upgrade schemes and services to the North for our leaders here to take responsibility for them.”
David Sidebottom, director at the independent watchdog Transport Focus, said: “After years of misery Northern passengers just want a reliable service. In our latest survey Northern passenger satisfaction is at an all-time low. They deserve better.
“Passengers need to hear when services will get back on track. Government must now provide a plan, including much needed investment in infrastructure, to enable the next operator and Network Rail to improve performance and tackle overcrowding.
“The rail industry must listen to passengers and communicate its plan to improve services and rebuild trust.”