Plans for the North to take control of rail services could be blocked by Ministers.
The setback is just the latest sign that the Government is reluctant to devolve power to the region.
Newcastle City Council leader Nick Forbes is seeking an urgent meeting with Transport Secretary Patrick McLoughlin after it emerged a Government decision on the proposals has been delayed.
Authorities in the North East are joining forces with those in Yorkshire, Manchester and Merseryside to take control of franchise arrangements for Northern Rail and First TransPennine Express.
The aim is to create a better service by setting minimum standards for train operating companies based around the needs of the region, with improved information for passengers and a bigger focus on bus, tram, cycle, car and walking routes with stations.
Ministers were expected to give the green light to the new arrangements, known as Rail North, by Christmas - but the decision has now been put on hold, with no announcement due before 2014.
Transport department officials are sceptical about whether the north of England can handle the franchise process, according to reports.
The delay is the latest in a series of blows to the region’s hopes of winning more power over its own affairs.
In October, Mr McLoughlin attacked North East councils over their plans to take over bus services, which are bitterly opposed by bus operators.
Speaking to The Journal, the Transport Secretary urged councils to “work with the bus operators” instead of fighting them.
And earlier this month, the Department for Communities and Local Government cast doubt on plans to create a combined local authority for Durham, Northumberland and Tyne and Wear.
A consultation document highlighted a referendum in 2004 in which North East voters opposed a regional assembly, warning it would only back the plans if there is “clear and compelling evidence that the past opposition of electors within the local area to governance changes in that area does not continue to any new proposal for a combined authority.”
Council leaders believe they can save £20m a year by taking responsibility for services.
But one of the major goals is to ensure the Northern Rail franchise and the TransPennine Express franchise are better co-ordinated with each other, and with other forms of transport.
This includes arranging timetables to provide convenient connections between rail services.
Coun Forbes said: “I’ll be seeking an urgent meeting with Patrick McLoughlin to discuss this, because for the last two years he’s been giving councils across the North very strong encouragement to work up a proposal to take over the Northern rail franchise.
“If the Government are backing out at this late stage, then it’s a huge political climbdown which will cause fury among local government leaders who have been working hard on the franchise proposals, on the understanding that we could ensure rail services more closely matched our economic needs.
“This looks like the Government turning its back on growth potential in the North, and if they decide not to go ahead with this it would be a massive climb down.”
A DfT spokesman said: “We remain fully committed to decentralisation options. Enabling decisions on rail services to be made at a local level could benefit passengers and help stimulate economic growth by lowering costs and improving efficiency.”