Ken Livinstone looks set to win his battle with the government over modernising the Tube.

Deputy prime minister John Prescott has announced that he will work with Bob Kiley, commissioner of transport, on modifications to the controversial public private partnership for London Underground.

In a statement on Friday, Prescott said that once "mutually acceptable" changes had been agreed then the PPP bidders will be asked to submit revised proposals.

The issue has proved to be a major embarrassment to the government and Labour hopes the issue will be settled before Londoners go to the polls at the general election.

Kiley, appointed by Livingstone following his successful modernisation of the New York underground, had said that the government's scheme was unworkable and that there were concerns over its viability. His comments were backed up by a National Audit Office report which called the process "flawed".

The government also hopes that the announcement will head off a strike by Underground staff, which had been called for Monday, over safety concerns. Ken Livingstone had vowed to join staff on the picket lines to support them.

John Prescott said "Bob Kiley is assembling a strong management team in Transport for London. The private sector too can contribute through the PPP to rebuilding the Underground. I have asked Bob to take the lead in working up proposals for modifying the PPP. He will be working closely with government and London Underground."

Bob Kiley commented: "I recognise the role that the private sector can play in what must be a long term investment programme. But I want to see if the PPP structure can be modified so that there is unified management control over the operation, maintenance and renewal of the Underground."