The Competition and Markets Authority (CMA) said that it would seek to determine whether there would be “a substantial lessening of competition” as a result of the deal.
The merger was announced in October, when Flutter said that the all-share tie-up with the Canadian-owned Stars Group would create the world’s biggest online betting and gaming firm.
The combined group’s global revenue would have been £3.8bn in 2018.
The CMA is now inviting comments on the deal, and has set a deadline of 18 February.
Flutter also owns Betfair, meaning that the combined group would control some 40% of the UK’s online sports betting market.
The group said the merger could save £140m a year through “pre-tax cost synergies,” as well as lowering finance costs and reducing Flutter’s debts.
The CMA in recent months has stepped up its efforts to regulate competition in the online space. In January, it launched an unexpected last-minute probe into the merger of food delivery firm Just Eat (JE.L) with Amsterdam-based Takeaway.com (TKWY.AS).
The CMA in 2016 told betting Ladbrokes and Gala Coral to sell up to 400 of their stores in order to get the go ahead for their £2.2bn merger.
Bookmakers in the UK have seen steady growth in the online gambling sphere following a government clampdown on fixed-odds betting machines.
If the Flutter deal is approved, it is expected to close in the second or third quarter of 2020.
Shareholders of Flutter will own close to 55% of the new company. Shareholders in Stars Group will own the rest.
The combined group will be headquartered in Dublin and will have its primary listing on the London Stock Exchange.