The Competition and Markets Authority (CMA) said that the proposed deal between Hutchinson's Three and Telefonica's O2 threatens to significantly affect competition in the UK mobile markets. This is because a successful deal would cut the number of mobile network operators in the UK to just three.
The European Commission had said last week that it would decide by October 16 whether to clear the deal.
The CMA added that any impact on competition resulting from the merger will likely be limited to UK consumers.
The decision on whether to refer the case has to be taken by the European Commission by 30 October.