The deal would have brought together many of the UK's best known and best selling lagers and bitters, including Carling, Stella Artois, Boddingtons, Worthington and Caffrey's.
Jobs may also have been a factor in the government's decision to block the take-over, as the deal was expected to lead to the closure of a number of UK breweries.
Stephen Byers, trade and industry secretary, has ordered Interbrew, the world's second largest brewer, to put the Bass breweries it bought in June back up for sale.
Share price plummets
The decision saw shares in Interbrew, which had been suspended pending the announcement, dive more than 20% after trading resumed, falling to 28.62 euros.
Analysts thought it unlikely the group would be able to achieve a sale price for Bass to match the amount it paid.
David Liston, analyst at stockbroker Gerrard, said: "I think if they get £2bn, they would be doing quite well."
Mr Byers supported the conclusions of trade watchdogs who condemned the merger, which promoted Interbrew to number one spot in the UK beer market, as "against the public interest".
"This is because it would reduce competition in the market, lead to higher prices for end consumers and reduce consumer choice," Mr Byers said.
The deal would leave the UK brewing market in the hands of an "effective duopoly" of Interbrew and Scottish & Newcastle, Mr Byers was told by the Competition Commission.
Market leader
The commission feared that the two brewers would use their market dominance to raise the prices pubs and off licences pay for beer.
Scottish & Newcastle and a Bass-enhanced Interbrew would also, through their huge marketing and advertising capabilities, be able to block the entry of new competitors into the market, the commission said.
Leading drinks would be promoted at the expense of smaller brands, prompting rationalisation of beers and "therefore less choice for consumers", the DTI said.
Price 'discrimination'
The commission also found that supermarkets and off licence giants pay less than independent outlets for Interbrew beer, reducing the ability of small retailers to compete.
The price gap was "only in part explained by differences in costs occurred", the commission found.
"The commission expected that the merger would enhance Interbrew's ability to discriminate on prices in this way," it added.
Alternative buyer
Dutch giant Heineken has been tipped by analysts as favourite to land the Bass portfolio, following Mr Byers' sale order.
The third ranking brewer in the UK, Carlsberg-Tetley, is also expected to be in the running.
The business, the UK arm of the Danish-based brewing empire, said it would be interested in the purchase if it could be assured the deal would win regulatory approval.
Carlsberg in 1997 had a takeover bid for Bass Brewers blocked by competition authorities.
Bass decided to offload its brewing arm to concentrate on its hotel operations and its portfolio of 3,000 restaurants and pubs.
Bass operates Inter-Continental, Crowne Plaza and Holiday Inn hotels.