The Competition and Markets Authority (CMA) has approved the purchase of Bournemouth Water by South West Water.
Its assessment found the merger “is not likely to prejudice” regulator Ofwat’s ability to compare water companies’ performance and set price controls.
Bournemouth Water provides drinking water to 440,000 homes in Dorset and part of Wiltshire and South West Water provides both water and wastewater services to a population of 1.7 million in Devon, Cornwall and parts of Somerset and Dorset.
Chris Loughlin, Pennon Group Board Director and Chief Executive of South West Water, said: “We strongly believe that the merger will deliver long term benefits for both customers and shareholders.”
The merger is expected to be completed by April 2016.