• West Ham's bid to own stadium halted by legal challenges • Arena likely to be rented out and shared with UK Athletics

West Ham United have confirmed that they still intend to move into the Olympic Stadium under a simplified rental arrangement after ministers and the legacy company scrapped talks over their contentious bid to take over the venue after the London 2012 Games.

The Department of Culture, Media and Sport is on Tuesday expected to confirm that the ongoing talks over the future of the stadium – awarded to a joint bid from West Ham and Newham council earlier this year following a bitterly contested battle with Tottenham Hotspur – have collapsed.

But the DCMS is expected almost immediately to re-tender for the stadium under a process that would see it remain in public ownership and simply rent the ground to West Ham in the winter and UK Athletics, using it as the centrepiece of its 2017 World Championships bid, in the summer.

A joint statement from the West Ham vice-chair Karren Brady and the Newham council chief executive Kim Bromley-Derry said they would welcome the move to bring clarity to the process.

"We understand ministers will make a statement later and we will not pre-empt that. 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 as a direct result of the legal delay," the statement said.

"Therefore we would welcome a move by OPLC and government to end that uncertainty and allow a football and athletic 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."

The Olympic Park Legacy Company board met on Monday to agree the new course of action and wrote to the government for approval. The move was to have been announced on Tuesday but details were leaked overnight.

The negotiations have been dragging on for months and have been complicated by a legal challenge from Spurs, doubts over how the deal would be structured and paid for and claim and counter-claim over the way it was awarded.

A judicial review over the process was due to be heard on 18 October at the High Court after a judge ruled there were sufficient doubts over whether a £40m loan from Newham to West Ham flouted state aid rules for the case to be heard.

The Leyton Orient chairman Barry Hearn said his club would look to be a tenant when the new tender process opens. "Today is a fabulous day for Leyton Orient fans," he told Sky Sports News.

"It puts the whole thing back in the public domain as it should be. The system of deliverance was fundamentally flawed and now they have got to go back to the beginning and start again and we will be an interested party in that bidding process."

The sports minister Hugh Robertson welcomed the move: "The key point is the action we have taken today is about removing the uncertainty. The process had become bogged down in legal paralysis. Particularly relevant has been the anonymous complaint to the EC over 'state aid' and the OPLC received a letter from Newham council yesterday [Monday] saying because of the uncertainty they no longer wanted to proceed. That was the straw that broke the camel's back and we thought it better to stop it dead in it tracks now.

"We know there is huge interest in the stadium out there from private operators and football clubs and crucially we remove any uncertainty."

Some £35m already earmarked under the Olympic budget will be used to transform the stadium after the Games. Prospective tenants will then be asked to bid for the stadium with the running track remaining in place.

Robertson added: "This is not a white elephant stadium where no one wants it, we have had two big clubs fighting tooth and nail to get it. The new process will be more like how Manchester City took over the Commonwealth Games stadium which is regarded as a leading example of how to do it."

Initially, it was hoped Spurs would drop their legal challenge after the mayor of London Boris Johnson promised a £17m package to help towards the redevelopment of White Hart Lane and the surrounding area. But Spurs have kept their options open, saying they need more time to examine the City Hall proposal.

Johnson insisted the stadium would not become a burden to the taxpayer. "I am confident that this decision is the best way to ensure we have certainty over the stadium's future," he said. "I believe it will also put us in the place where we always intended to be - delivering a lasting sustainable legacy for the stadium backed up by a robust but flexible business plan that provides a very good return to the taxpayer."

The doubts over the future of the stadium have cast a shadow over London's bid to host the 2017 World Athletics Championships, although inspectors said last week they were satisfied with guarantees given by the government and the legacy company that it would remain no matter what.

The UK Athletics chairman Ed Warner said the move was "fantastic for UK Athletics" and would help the bid for 2017. "We had a meeting with the IAAF inspectors last week and we gave Government guarantees that the athletics track will stay in place," he told BBC 5 Live.

"The move you see today is simply confirmation of what we told the IAAF. The IAAF were concerned when they arrived but when they left they told us that the issue was completely resolved. We laid out the legal options and they went away happy."

The move to scrap talks with West Ham and Newham is just the latest twist in a byzantine, error-strewn saga that dates back to before London won the Games.

In a bid to avoid another embarrassment like Picketts Lock or Wembley, the government of the day was keen to nail down proposals for the stadium early and begin construction.

As such, the option of building a dual-use stadium like the Stade de France was quickly discounted and the option of reducing the capacity from 80,000 to 28,000 favoured.

When the coalition came to power and the Olympic Park Legacy Company was handed responsibility for the area after 2012, they resolved to re-open the tender process in an attempt to attract a Premier League football club and bring more visitors and inward investment.

But in order to create a competitive tender, there had to be enough latitude in the wording to encourage Spurs to table a bid that involved tearing out the track and rebuilding Crystal Palace. They believed a dedicated football stadium without a track was the only commercially viable option.

That caused a hugely emotive row, with Lord Coe among others pointing to the promises made before the bid to retain the track.

The controversy did not stop with the award of the stadium to Newham and West Ham. The Spurs chairman Daniel Levy launched an immediate legal challenge and the waters were further muddied by revelations that an OPLC executive moonlighted for West Ham during the bid, and claims by the OPLC and West Ham that private investigators hired by Spurs had accessed private phone records.

Later inquiries by West Ham and the OPLC found the executive in question had no impact on the tender process, while a Metropolitan police investigation into the West Ham claims is ongoing.