The Government is expected to confirm that West Ham United's deal to take over the Olympic Stadium has collapsed.
Ministers are said to be concerned that legal action by Tottenham Hotspur and Leyton Orient could drag on for years during which time the stadium would remain empty.
The Stratford stadium will instead be leased out to a tenant following a new tender process.
It is likely that, under the new tender process, any costs of transforming the stadium after the 2012 Games will be covered by the Olympic Park Legacy Company (OPLC).
The successful tenant will then pay an annual rent to the OPLC which could actually prove to be less costly for the likes of West Ham.
A £50m fund of public money has been set aside to convert the 80,000-capacity stadium into a 60,000-seater venue after the games next year.
The decision by the Government is also likely to remove uncertainty over the stadium ahead of London's bid for the World Athletics Championships in 2017.
There has been an anonymous complaint to the European Commission, claiming that the £40m being provided by Newham Council to West Ham represented "state aid".
The football club had wanted to convert the £537m stadium into a 60,000-capacity venue for football, athletics, concerts and community use.
But it has experienced financial problems since it was relegated from the Premier League last season.
It is understood that no contract has been signed with West Ham, allowing the move to a fresh tender process, but the club will be encouraged to bid again.
Leasing the stadium is estimated to cost around £2m, which would be a much more affordable option.
The decision is also likely to have been influenced by concerns that the application for a judicial review by Spurs and Orient could drag on and, even if their bids failed, they could appeal.
In a statement Karren Brady, vice-chairman of West Ham United, and Kim Bromley-Derry, chief executive of the London Borough of Newham said: "Uncertainty caused by the anonymous complaint to the European Commission and ongoing legal challenges have put the Olympic legacy at risk and certainly a stadium, as we envisioned it, may not be in place by 2014 due as a direct result of the legal delay.
"Therefore we would welcome a move by OPLC and government to end that uncertainty and allow a football and athletics stadium to be in place by 2014 under a new process.
"If the speculation is true, West Ham will look to become a tenant of the stadium while Newham will aim to help deliver the legacy.
"Our bid is the only one that will secure the sporting and community legacy promise of the Olympic Stadium - an amazing year-round home for football, athletics and community events of which the nation could be proud.
"The true legacy of London 2012 will be the creation of jobs and a generation of young people inspired by sport based around a community home for all by 2014. We remain committed to help deliver that legacy promise to the people of London and the nation."
The Department for Culture, Media and Sport (DCMS) is expected to make a formal statement at lunchtime.
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