The Government is to bail out failed Tube maintenance firm Metronet by offering £1.7bn to London Underground to cover the collapse.

The Government's announced that a funding package has been confirmed, including a guarantee that it will give Transport for London (TfL) the sum to cover Metronet's debts.

The deal is in line with the terms laid down in the much-opposed private public partnership deal completed in 2003.

In a written statement, Transport Secretary Ruth Kelly said the government was buying the debt under a put option agreement in the PPP contract that left the taxpayer liable if the firm became insolvent.

"The settlement gives London Underground the resources needed to manage Metronet's administration and move toward a more stable long-term footing and continue the work to maintain, renew and upgrade the Underground," she said.

TfL, London Underground, Livingstone and passenger watchdogs severely criticised Metronet for over-running engineering work and delays in upgrading stations.

Created under a private-public financing initiative, Metronet announced last year it was no longer able to meet its obligations amid spiralling costs.

London Underground managing director, Tim O'Toole, said the main priority remained the removal of Metronet from PPP administration as quickly as possible.