The takeover bid by Foxtel, part owned by Murdoch's News Corp would have given the company an almost undisputed sway in pay TV operations in Australia.
The delay in takeover bid was a second setback to Murdoch's News Corp within weeks as the company had to abandon its plans to take full control of the the money spinner London based Satellite Broadcaster, BSkyB.
The Australian Competition Commission ruled that the merger of Foxtel and Austar, its major rival in Australia was likely to lead to "substantial lessening of competition in the pay TV market".
"The proposed merger would therefore effectively create a monopoly subscription television provider across Australia", ''Sydney Morning Herald'' reported quoting a statement issued by the Commission.
The Australian Commission plans to pronounce a final verdict in September, but the issues relating to monopoly raised by it have put question marks on the bid by Foxtel.
While News Corp owns 25 per cent of Foxtel, the remaining 75 per cent is owned by telecom giant Telstra (50 per cent) and Packer owned Consolidated Media Holdings (25 per cent).
Though the Murdoch owned News Corp is struggling to overcome a phone hacking scandal in Britain, the Commission chairman Graeme Samuel said there was not the slightest connection of any nature between his decision and the storm in UK.
But the shares of the company slumped by over 2.2 per cent, reversing three days of gain.
Media mogul Rupert Murdoch is a dominant media player in his home country Australia, which is also the birth place of his company News Corp. He owns two-thirds of Australia's newspapers and has a substantial stake in broadcasters, Sky News and Fox Sports.