The government has also ordered an inquiry into the "deeply flawed" tender.

The £6.1bn contract, awarded in 2014, is being terminated nine years early.

The move hit shares in the UK engineering firm Babcock International, which headed the group that won the decommissioning deal.

Flawed

The compensation will go to Energy Solutions, which had previously managed the decommissioning sites, and another engineering firm, Bechtel.

It follows a High Court ruling last July which found that the Nuclear Decommissioning Authority (NDA) had "fudged" the tendering process, wrongly deciding the outcome of the procurement process.

Not only was the tender process flawed but the contract itself did not reflect the true extent of the work that had to be done, the court found.

Babcock confirmed it had reached an agreement with the NDA to hand back the decommissioning contract early.

The company said that the work required at the 12 sites was "now materially different in volume to that which was initially specified".

The 14-year contract will now end in September 2019 after just five years.

That will dent Babcock's annual revenue by £100m in 2020-21. The group said it would replace that with new business.

Nonetheless, its shares were down more than 4% in Monday trading after the news.

'Defective'

The independent inquiry, which will be led by the former chief executive of National Grid, Steve Holliday, will look at how the tender process was run and why the contract awarded proved unsustainable.

"It's clear the 2012 tendering process was deeply flawed," said the Business Secretary Greg Clark, responding to an urgent question in parliament.

"This was a defective procurement, with significant financial consequences, and I am determined that the reasons for it should be exposed and understood; that those responsible should properly be held to account; and that it should never happen again," Mr Clark also said.

He added that workers at nuclear power stations at the heart of the failed decommissioning deal would not be under threat.

According to the Department for Business, the inquiry will "review the conduct of the NDA and of Government departments and make any recommendations it sees fit".

That could include possible disciplinary proceedings, it added. The inquiry is due to report in October.

Trade unions have called for the decommissioning contract to be taken back from private companies.

Unite national officer for energy, Kevin Coyne, said it was "clear that the 'clean up' contract should be taken back into public control where it should have been in the first place".

The GMB's Scotland Secretary Gary Smith described the 2014 deal as "a mess from the off".

"We need to cut out the middle men, have this work done in-house to cut costs and to save the taxpayer money," he said.