Work and Pensions Secretary James Purnell told MPs the Post Office will retain the crucial £1 billion Post Office Card Account contract until at least 2015.

The announcement was met by cheers from MPs who feared handing the work to a rival bidder would have destroyed the already beleaguered Post Office network.

Sheffield Communities Against Post Office Closures group SCAPOC welcomed the U-turn.

Spokesman Alistair Tice said: "This decision is a victory for campaigners. Now the Government must announce a moratorium on all post office closures, including the 15 in Sheffield.

"If the private banks can be bailed out, then the publicly-owned Post Office should continue to be subsidised. Indeed it should be turned into a 'People's Bank' which could offer cheap loans and mortgages to small businesses and homeowners just as the Government says it wants to do."

Sheffield Brightside MP David Blunkett said: "I strongly welcome this decision, which is a victory for all those residents in Sheffield who have lobbied and campaigned on behalf of their local Post Office.

"With the economic downturn now being felt in Britain, people are worried about their finances. Post Offices are trusted local providers and this decision should help to safeguard outlets which had been thought to be at risk.

"I have been pleased to make representations on behalf of those, including 10,000 POCA holders in my constituency, who have campaigned and lobbied so vigorously."

Wentworth MP John Healey received campaign postcards from more than 2,000 constituents and said: "Post offices are well-trusted and people use them for a wide range of services. Maintaining a viable post office network is even more critical now when people are worried about their finances. Post offices are often the only providers of banking services in local areas."

Sheffield Central MP Richard Caborn added the decision showed the Government was listening.

"This announcement is good news for the Post Office as the card account is an important source of income and brings customers through the doors," he said.

"The Post Office is a trusted brand and is seen as a safe, secure and reliable provider of services in these turbulent times. Labour MPs have campaigned hard on this issue on behalf of the concerns of their constituents."

Earlier this month The Star reported on warnings that 80 per cent of post office counters could close if POCA was handed to private firm PayPoint.

That would have resulted in another 77 branches going to the wall, leaving a rump of only 19 counters in the city.

The Post Office is already axing 15 branches across Sheffield, although the council is in talks to take on nine. That will leave a network of 96 branches.

POCA processes millions of pension and benefit payments and makes £200 million profit a year.