LONDON -Nvidia Corp's planned $40 billion acquisition of British chip designer ARM looks set to face a lengthy inquiry after a UK regulator found the purchase by the U.S. group would hit competition and could weaken rivals.

Britain's Competition and Market's Authority (CMA) said on Friday the takeover of Britain's most important technology company could lead to "significant competition concerns".

While Nvidia, the world's biggest maker of graphics chips and AI chips, had offered remedies to lessen the impact, the CMA did not believe they would alleviate its concerns.

"The CMA found that the merger should be progressed to an in-depth Phase 2 investigation on competition grounds," it said.

Britain has seen a record number of takeover bids this year, with private equity and listed firms pouncing on everything from supermarkets to drinks makers and defence groups.

ARM, which is owned by Japan's SoftBank, agreed to be sold to Nvidia in September. As well as competition concerns it has also raised alarm over Britain's national security.

ARM is a major player in global semiconductors, a sector fundamental to technologies from artificial intelligence and quantum computing to 5G telecoms networks. Its designs power nearly every smartphone and millions of other devices.

Semiconductors also underpin critical infrastructure in Britain and the government has said they are in technology related to defence and national security matters.

As a result the takeover has become politically charged, with critics arguing that a rise in economic nationalism and greater awareness of the importance of infrastructure ownership means it should not be sold again.

The government will give its fuller response at a later date, which will also include its thinking on any impact on national security. It could refer the deal for a full in-depth inquiry which takes around 24 weeks.

Britain's government could then block the takeover, approve it or allow it to pass with certain undertakings.

  - Reuters