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A statement issued by the council and CSL said the decision followed a review by both parties of the way in which the benefits service was provided to residents.
Business outsourcing specialist CSL currently assesses the benefits claims, while the council authorises claims and provides the front line service to residents.
The joint statement said: "It is now clear that the service will operate more effectively if these elements are brought together. The council will be working closely with CSL to bring the service back in-house as quickly as possible and to ensure a smooth transition of service."
Unison, the public sector workers' union, has made repeated calls for CSL to lose the contract. The union condemned CSL's record on benefits delivery at Newham as one of "persistent failure", with "massive backlogs and mistakes" becoming the firm's "hallmark".
Unison also insisted that Newham enjoyed an "efficient and competent" service before it was transferred to CSL.
Last month, CSL pulled out of a services bid with Newcastle Council after getting embroiled in a war of words with Unison and the council on the transfer of staff.
This week, a report by the Audit Commission of England and Wales declared that the successful outsourcing of council housing benefit services was "rare and difficult".
The report said councils had to be clear about what they needed from an outsourcing deal, and that contractors should be sure of what they could achieve.