The Department for Transport is reported to be considering taking direct control of Southern Rail and running the service temporarily until it can be handed over to another suitable private operator.
This is one of several options the department is exploring to resolve the problems faced by Southern's operator, Govia Thameslink Railway (GTR).
The other option is to pull Southern from GTR as part of a "managed exit" until a new contract can be sorted. GTR is the country's biggest rail operator. It also manages Thameslink, Great Northern and Gatwick Express, The Times reports.
The proposal by the DfT is at an advanced stage that it even has a codename and a potential interim managing director, reports Rail Business Intelligence magazine.
The network, which carries around 300,000 passengers a day between London and the South coast, has been facing chaos after almost a year of industrial action by unions.
The Times said the department has been reluctant to strip the company of the Southern franchise as it could play into the hands of the unions. Unions and Labour leader Jeremy Corbyn are likely to claim victory if the government takes control of the franchise, local media reports noted.
Conservative MPs with constituencies along the line welcomed any plans for renationalisation but warned that the government will still have to deal with industrial action even after GTR is stripped of its franchise.
Chris Philp, the Conservative MP for Croydon South told The Telegraph: "I would welcome this. But the unions are themselves are the source of many of the problems with their completely needless strike action."
A rail operator can lose its franchise if it fails to hit targets for punctuality, cancellations and number of carriages. GTR insists that its failure to run adequate services in 2016 was due to the effects of industrial action or force majeure, but the department has yet to confirm whether the company is in breach of contract, The Guardian says.
The Telegraph says that an official investigation "is close to deciding" whether Southern's performance is so poor that it has breached the terms of its contract with the government.
The Transport Focus, a passenger watchdog had rated Southern as the worst rail operator in the country this week. Only 46% of GTR trains ran on time over the past month.
Paul Maynard, the Rail Minister had recently wrote to the Transport Select committee chair Louise Ellman, saying that even if GTR's claim of force majeure was rejected and the company found to be in breach, it would not necessarily lose the franchise.
Ellman said that the latest reported moves showed that the department is in an "increasing desperate situation." She said: "Commuters are angry, the government's own MPs are angry, and the transport committee can't even get a straight answer on force majeure.
"In the meantime GTR are picking up a billion pounds a year, and the cost to the public purse from lost revenue is £38m - the government must take a decision. However unpalatable, they can't let this continue," she said.
DfT denies plans to strip GTR of franchise
Meanwhile a spokesman for the transport department said that there were no plans to strip GTR of its franchise, describing the report by the magazine as "pure speculation."
A GTR spokeswoman added: "The article is just speculation and we wouldn't comment on it. As you would expect there are always discussions with the DfT regarding the GTR franchise contract and our other franchise contracts."
Mick Cash, the RMT general secretary, seems to be in favour of renationalisation, according to The Guardian. He told the paper: "Instead of dragging this farce out any longer the government should now do the decent thing, pull the plug on the GTR contract, take the lines under public control and draw a line under this shambles that shames Britain's railways."
Should the rumoured plans go ahead, it will not be the first time the government has stepped in to take over a franchise. In 2009, the East Coast franchise was taken over after the government refused to give National Express further financial support. The franchise was subsequently taken over by Virgin Trains East Coast in March 2015.