The Culture Secretary, Jeremy Hunt, has referred News Corporation's bid for BSkyB to the Competition Commission.The move follows News Corp's withdrawal of its proposed undertaking to spin off Sky News as part of its attempt to take over the broadcaster.
The spin-off of Sky News had initially been the key condition if News Corp was to be allowed to take over BSkyB.
But in light of the phone-hacking scandal, Mr Hunt had said he was seeking fresh advice from regulators.
"I am now going to refer this [bid] to the Competition Commission with immediate effect and will be writing to them this afternoon," Mr Hunt told the House of Commons.
"Today's announcement will be an outcome that I'm sure the whole house will welcome.
"It will mean that the Competition Commission will be able to give further full and exhaustive consideration to this merger, taking into account all relevant recent developments."
The referral is likely to delay the bid for several months while the Competition Comission investigates whether the takeover would break anti-monopoly laws.
News Corp already owns 39% of BSkyB but wants to take full control of the firm.
'Ready to engage' Mr Hunt's statement in the Commons came about half an hour after News Corp put out a statement saying it was withdrawing its plan to spin off Sky News.
BBC business editor Robert Peston said that by doing so, News Corp was in effect asking for its bid to be referred to the Competition Commission.
"Should the Secretary of State for Culture, Olympics, Media and Sport decide on this basis to refer the proposed transaction to the Competition Commission for a detailed review, News Corporation is ready to engage with the Competition Commission on substance."
"News Corporation continues to believe that, taking into account the only relevant legal test, its proposed acquisition will not lead to there being insufficient plurality in news provision in the UK."
Many fear that if News Corp's proposed bid for BSkyB were successful, it would leave Rupert Murdoch's conglomerate owning too much of the British media.
Opposition to the bid has increased this week following revelations of alleged phone-hacking at News of the World, the Sunday paper owned by News International, which is part of News Corp.
The scandal has led to the closure of the newspaper and raised questions as to whether News Corp would be a "fit and proper" owner for BSkyB, as required by the media regulator Ofcom.
Share price fall Mr Hunt said the Competition Commission would "consider media plurality, just as I was", and would not look at broader issues.
The commission could decide to block the deal entirely or could negotiate undertakings or circumstances under which it could go ahead, he said.
Ofcom was at liberty to investigate the issue of "fit and proper" at any time, he added, but would also have to take into account any subsequent undertakings negotiated by the Competition Commission.
BSkyB's share price fell throughout the day, falling to about 670p when News Corp put out its statement, well below the 700p level that News Corp offered for them in June 2010.
The broadcaster's shares ended the day down 4.6% at 715.5p.