Shares in BSkyB and Manchester United fell sharply on the report, which said the MMC had ruled that the deal was against the public interest.
The MMC's report was passed to the Department of Trade and Industry on Friday. Stephen Byers, Trade and Industry Secretary, is expected to rule on the deal within the next few weeks.
Rival media groups and associations of Manchester United fans have argued that the combination of Britain's dominant sports broadcaster and leading football club was anti-competitive and should be blocked.
The news emerged as Manchester United prepared for the second leg of their crucial European Champions' League quarter-final against Inter Milan last night. Spokesmen for the club and BSkyB refused to comment on the report, which they claimed was "speculation". A spokesman for the Prime Minister said he doubted DTI officials were responsible for it. "I don't believe the story," he said.
The report, citing sources close to the Department of Trade and Industry, said the MMC had concluded that undertakings offered by BSkyB and Manchester United designed to address competition concerns were unworkable.
News of the leak sparked a feverish hunt to find the source. It is believed that apart from Mr Byers only four officials at the DTI have actually seen the report. However, a copy is understood to have been sent to the Office of Fair Trading, leading some observers to suggest that the leak may have emanated from sources within the competition watchdog.
Objections to the takeover have centred on the possibility that Manchester United might be able to pass information on rival bids for Premier League television rights to BSkyB. The two companies have tried to ease these fears by offering undertakings about their behaviour in future rights auctions. However, responsibility for policing these undertakings would fall to the OFT.
A spokesman for the Manchester United Independent Supporters' Association said the group, which has lobbied vociferously against the takeover, was encouraged by the news. He added: "We believe Stephen Byers must make an early decision and put an end to this speculation, which doesn't do Manchester United or football any good."
Speculation about the outcome of the bid has been rife since the MMC completed its report last week. People close to BSkyB and Manchester United have already expressed their surprise at the hostility of the questions they had been asked by the MMC.Reuse content