The UK government says it is referring News Corp.'s bid for British Sky Broadcasting (BSKYB) to competition authorities for a review.
That announcement on Monday from Jeremy Hunt, the UK's cutural secretary, means that the bid will likely be put on hold for several months.
The decision follows News Corp's withdrawal of a promise to spin off Sky News, which had been a condition for taking full control of the prominent broadcaster, in which it already owns 39 per cent.
Britain's Competition Commission now must hold a full-scale inquiry into whether the takeover would break anti-monopoly laws.
News Corp, owned by media mogul Robert Murdoch, has acted as the government was facing intense pressure to block the BSKYB bid following revelations of phone hacking activity at the NOW.
"News Corp 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," the company said.
The move came as analysts predicted earlier on Monday that Murdoch's bid for full control of the lucrative satellite broadcaster was already doomed to failure.
Financial analyst Louise Cooper of BGC Partners said the revelations of phone-hacking at Murdoch's 'News of the World' title had sent the BSkyB share price tumbling from $13.5 a week ago to just seven British $11.14 on Monday.
"What that tells us is that the City no longer expects the takeover to go through - or is at least highly sceptical that it will go through, and that it definitely won't go through in the foreseeable future," she said.
Alan Rusbridger, editor of The Guardian newspaper and the first to report on the hacking scandal two years ago, also said the takeover bid was dead in the water on Monday.
"I think the prospects of the BSkyB bid going ahead are now nil," he said. "I think the government realises it would be politically impossible."
A failure to clinch the $11.9b takeover would represent a huge setback for Murdoch, who has built up a global empire over four decades.
As well as owning Fox News and the 20th Century Fox film studio, News Corp owns a raft of newspapers and media outlets all round the world.
Critics are also asking regulators if News Corp is "fit and proper" to hold a broadcasting licence at all.
Tania Page reports from London.
