The £1.2bn acquisition is to be referred to the European Commission for anti-competition regulation, the UK electricity watchdog Offer has decided.

Offer, which is investigating the merger for competition concers, is drawing up a consultation paper on the merger. It says the case fits the criteria for European Commission inspection.

London Electricity, which opens up to full competition in the market next week, serves two million customers while EdF controls 7.5% of the UK generating market via a cross-Channel link.

Offering advice

As part of Offer's consultation process, the watchdog will be offering advice to the UK government and putting forward its concerns to the European Commission.

"We will be looking at the implications for the market in terms of the development of competition in generation and supply," said a spokeswoman for Offer.

UK Energy minister John Battle says the case will be taken to the Commission

The announcement comes a week after UK Energy minister John Battle said the government would also be highlighting anti-competitive issues raised by the acquisition to the European Commission.

Under EU law, the Commission scrutinises any merger in which the company could create or consolidate a dominant position which would undermine competition in the member state.

Sparking a cross-Channel row

The merger however has infuriated British energy companies who say there is no level playing field.

While their French counterparts are allowed to operate in the UK, the French market is closed to UK generators.

EdF is determined to move into Europe ahead of the partial deregulation of the European electricity market next year.

EU governments have agreed to open up 25% of the electricity market to competition in 1999, rising to 33% in 2007.

EdF is one of the world's largest energy utilities with revenues of £20.3bn ($33.5bn).