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Vibe FM is 49% owned by GWR and 51% owned by Scottish Radio Holdings. It announced plans to buy Galaxy 101 from Chrysalis in September.

The commission's report finds that the merger would operate against the public interest because it will give GWR too great a share of the local radio advertising market in the Bristol and Bath, and Taunton and Yeovil areas.

It is demanding that GWR halves its share in Vibe to 24.9% and stops its ad sales house Opus selling airtime for the station.

Competition minister Melanie Johnson said she backed the commission's findings and that the Office of Fair Trading would go back and renegotiate the terms of the deal with the stations.

Johnson said: "I find the Competition Commission's report into this merger credible and well argued. I agree with its conclusion that the merger may be expected to operate against the public interest. I am therefore inviting the Office of Fair Trading to negotiate with the parties to secure undertakings to remedy the adverse competitive effects of the merger."

The move will come as a blow to the wider radio industry, because it may be seen as a sign that further consolidation plans among radio owners may not get through the Competition Commission, despite relaxation of ownership rules by the communications bill.

The news will be a particular blow to Chrysalis, not least because the £12.5m sale of Galaxy contributed heavily to its first-half pre-tax profits of £9m, up from £0.6m last time, as reported last week.

Chrysalis shares dropped 3%, or 6.5p, to 208.5p on the news, with GWR taking a bigger hit, its shares falling 8.7%, or 16p, to 167p.

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