The Minister said he had hoped to have a competition for the operation of the new terminal, but none of the rival candidates met the minimum requirements.
He said he had no option but to end the procurement process last December, adding that he did not see 'any practical alternative' but to mandate the DAA to operate the terminal.
Minister Dempsey said, however, that the DAA would have to show that it could run the terminal in line with cost targets set down by the Commission for Aviation Regulation in December.
He has given the authority three months to report back to him on this.
DAA Chief Executive Declan Collier said: 'The DAA has been set a significant challenge by this decision.
'We will now work to try and meet the criteria stipulated by the minister and are committed to responding to him within the three-month period.'
Fine Gael Transport Spokesman Fergus O'Dowd has criticised the Minister for his handling of the competition issue.
In a statement this afternoon, Mr O'Dowd said: 'This is yet another Dempsey Disaster. At least €850,000 has been spent on a competition to choose an operator for Terminal 2.
'But the Minister has now scrapped the competition and decided to hand the contract over to the DAA.
'This is yet another example of a State monopoly blocking any competition.'
