Stafford hospital has become the first foundation hospital to be put into special administration.
Watchdog Monitor announced the move today after the Francis report revealed the true extent of failings at the hospital, which led to 1,200 unnecessary deaths between 2005 and 2009.
Monitor said it had made its original decision five months ago after a contingency planning team visited the hospital last year.
It said in a statement: "The team concluded earlier this year that the troubled trust was neither clinically nor financially sustainable in its current form in the long term.
"However existing patient services have been given a clean bill of health by the Care Quality Commission."
The decision plunges the future of the hospital into doubt, triggering concerns from the opposition.
Shadow health secretary Andy Burnham said people in Stafford would have "understandable concerns" about the development.
"After all they have been through, it could not be possibly be right or fair if the end result of this process sees the people of Stafford lose their hospital or some of its crucial services," he said.
Local Labour MP David Kidney lost his seat in 2010 after campaigning group Cure The NHS backed Conservative Jeremy Lefroy, following Tory promises the issue would be the subject of a judge-led inquiry.
Lefroy has said believed the hospital issue only played a "marginal" role in the 2010 general election campaign which was "certainly not decisive", despite the pivotal role Cure The NHS played in the constituency.
"They were and still are an organisation which campaigns for much better care for patients, for zero harm in hospitals, for compassionate and quality care," he told politics.co.uk.
"Cure The NHS can say they have made a real and positive mark on the future of the NHS."
Stafford hospital already faced cuts to its accident and emergency services, making its future politically potent for the 2015 general election campaign.
"What it's about is having a hospital that people have trust in and services people can depend on of the highest quality," Lefroy added.
The news comes as Cure The NHS campaigners are in Manchester, holding a silent vigil outside the offices of the NHS commissioning board. The group want NHS chief executive David Nicholson to accept responsibility for the deaths at Stafford hospital and resign.