UPDATE 1-Britain extends emergency funding for railways ahead of contract shake-up

(Recasts, adds detail, background)

LONDON, Sept 21 (Reuters) - Britain extended emergency pandemic funding to keep its rail network moving, providing private train companies with less lucrative temporary contracts ahead of a shake-up of the way the system operates.

The government did not go as far as a full nationalisation - as had been speculated by some media outlets - but said it wanted to run trains based on a new model once the impact of COVID-19 becomes clear.

Britain said it would now pay the companies management fees of a maximum of 1.5% of the cost base of the contract pre-pandemic, lower than the around 2% fee included in the initial emergency contracts issued at the outbreak of the pandemic.

UK train companies Go-Ahead and FirstGroup said they had signed new contracts with the government on Monday for a year and 6-18 months respectively.

Passenger numbers dropped by as much as 90% at the height of the pandemic as public transport was reserved for key workers. While numbers have risen in recent weeks, there are fears they could fall again as the virus accelerates.

Britain said that the pre-pandemic franchising system for the rail network, which was heavily criticised and failed for a number of operators, would not be brought back.

"The model of privatisation adopted 25 years ago has seen significant rises in passenger numbers, but this pandemic has proven that it is no longer working," Transport minister Grant Shapps said in a statement on Monday.

When the course of the pandemic becomes clearer, the government said it would publish details of how railway contracts will operate under the new system, but until then taxpayers will need to fund the railway, it said.

(Reporting by Sarah Young; editing by Kate Holton)