The DOJ said Halliburton's acquisition of its smaller rival Baker Hughes would hamper competition, raise prices, and reduce innovation across the industry.
"The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers," Attorney general, Loretta E. Lynch, said in a statement.
Attorney General Bill Baer of the department’s antitrust division added: "This transaction is unprecedented in the breadth and scope of competitive overlaps and antitrust issues it presents."
"Halliburton and Baker Hughes are two of the three largest integrated oilfield service companies across the globe, and they compete to invent and sell products and services that are critical to energy exploration and production. We need to maintain meaningful competition in this important sector of our economy."
The two companies may either cancel the planned tie-up or fight the government in court.
If the deal collapses due to competition concerns, Halliburton must pay Baker Hughes a $3.5bn breakup fee, according to regulatory filings.
Elsewhere, the European Commission has opened an investigation into the proposed merger. Regulators in Australia have also expressed concerns.