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Sir Richard Branson's Virgin Rail Group has lost Britain's largest rail franchise after the government opted to transfer the contract to rival transport firm Arriva.

The £600 million New Cross Country franchise covers 1,500 miles and 100 stations across the UK, including routes between Cardiff and Stansted airport; Manchester and Bournemouth; and Penzance and Aberdeen.

Virgin said it was "extremely disappointed" at the Department for Transport's (DfT) decision.

The rail group's chief executive Tony Collins, said: "Our bid was extremely competitive, built on our experience of operating the Cross Country franchise for the last ten years, during which time we almost doubled the number of passengers and increased performance to regularly exceed 90 per cent."

Mr Collins added that the new Arriva-operated franchise would "build on the legacy of our investment in new trains and improved services".

The new arrangement will see Arriva run the New Cross Country rail network between November this year until April 2016.

Rail minister Tom Harris said the government had "secured an excellent deal" with Arriva.

"Not only are they delivering an even bigger increase in capacity than we asked for, they are doing it a year earlier than expected," the minister said.

"I am especially pleased that the new franchisee will connect some of our biggest cities even more effectively. This will benefit both business and leisure travellers."

Arriva has pledged to provide 3,000 more seats daily across the franchise, as well as introduce a new web ticketing system and install free Wi-Fi internet access in first class carriages.

But the firm admits full-price fares will rise by an average of 3.4 per cent above inflation.

"We are delighted to have been chosen to operate this major franchise, which advances Arriva's UK rail presence significantly," said the firm's chief executive David Martin.

"With innovations in technology, and expertise which benefits from our existing success in rail operations in the UK and across mainland Europe, we are confident of meeting both rising demand and passengers' rising expectations for quality of service."