The CMA has blocked the proposed mega-merger between Sainsbury’s and Asda, which would have created a £10bn grocery giant.

The competition authority declared that the merger would result in rising prices for consumers thanks to a “substantial lessening of competition” throughout UK grocery both in-store and online.

It said that while the two businesses said they would cut some prices, detailed analysis had shown that the merger was “more likely to lead to price rises than price cuts”.

It also found that other grocery retailers were likely to “align their behaviour to limit their rivalry” in the 20% of the UK to which Ocado does not deliver.

The CMA said that it had reviewed a wide range of issues while making its decision and had considered the increased competition from discounters Aldi and Lidl and how new online competitors could affect the market but that those developments did not “allay its serious competition concerns”.

Sainsbury’s chief executive Mike Coupe rubbished the CMA’s verdict, accusing the watchdog of “taking £1bn out of customers’ pockets”.

The grocer had pledged to cut prices on core grocery staples by 10% if the deal were to go through and said it would plough £1bn into price within three years of the merger being completed.

Coupe said: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1bn out of customers’ pockets.”

Asda and owner Walmart said they were “disappointed” with the CMA’s decision.

Walmart International boss Judith McKenna said: “While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer delivering for customers. Walmart will ensure Asda has the resources it needs to achieve that.”

The merger would have created a business with a grocery market share of around 26% and have edged out current grocery market leader Tesco, not withstanding its recent tie-up with wholesaler Booker, to which the CMA gave the green light.