The competition watchdog will carry out an in-depth probe into Tesco's planned £3.7bn (€4.1bn, $4.8bn) deal to buy food wholesaler Booker.
The Competition and Markets Authority (CMA) said it has concerns that in more than 350 local areas "shoppers could face worse terms when buying their groceries".
It added there was also the "potential" for Booker to offer worse terms to rival retailers "in order to drive customers to their local Tesco".
Supermarket Tesco and Booker asked the CMA to fast-track its investigation to a more in-depth inquiry last month, which the regulator has now confirmed.
The watchdog now has 24 weeks to conduct its probe and pledged to publish its final report before Christmas, although it will release provisional findings sooner.
Tesco is Britain's biggest retailer, while Booker is the UK's largest cash-and-carry operator with around 13,000 staff and some 200 stores. Booker also owns the Londis and Budgens supermarkets as franchised outlets.
Tesco has faced criticism from investors over the deal, with some shareholders branding the takeover tilt a "distraction" and urging the Big Four grocer to scrap it.
The CMA said over the coming weeks it will assess whether the deal could reduce competition, seeking views and evidence from those potentially affected by the merger.
A Tesco spokesperson said: "We are pleased that the CMA has accepted our fast-track request, and we look forward to continuing our engagement over the coming months.
"This merger has always been about growth, and we remain convinced that it will bring benefits for consumers, independent retailers, caterers, small businesses, suppliers and colleagues."