The Ministry of Economic Affairs turned down the only bid for domestic ferry service contract from current operator Väinamere Liinid, and will now begin direct negotiations.
The ministry said the one bid did not meet requirements and negotiations with possible operators will take place in the next two months.
Jaak Kaabel, the head of the Aviation and Maritime Department at the ministry, said the state has enough time to find an operator who will begin servicing in the fall of 2016.
The main requirement, that of four new or barely used ferries, which should begin operation in 2016, has not changed, the ministry said.
The decision opens up an opportunity for state-owned Port of Tallinn, which was seen as the only realistic alternative to Väinamere Liinid, but could not guarantee the required four ferries by the procurement deadline. The company later said that it is in talks with ship builders.
The tender has been shadowed by finger pointing between the current and the previous governments, with former economic minister Juhan Parts saying the state should buy the ferries itself and hold a tender for operating the boats, which according to him would decrease the need for huge subsidies.
The contract for the service between the two main islands and the mainland will last 10 years. Väinamere Liinid has operated the routes since 1994.