"The Commission has decided to open an in-depth merger investigation into Lufthansa's takeover of Austrian Airlines because it has serious concerns that the result for passengers could be higher prices or reduced services on certain routes," European Competition Commissioner Nellie Kroes said.
She added that it was essential that consolidation does not deprive consumers of a choice of airlines, competitive prices and other benefits of the liberalisation of air transport in the European Union.
"I hope that, in a spirit of mutual cooperation, we will be able to work closely with Lufthansa in the coming weeks to find timely solutions to these concerns."
The referece to timely solutions comes amid concerns about time running out, after Lufthansa set a July 31 deadline for approval of it's bid for the Austrian carrier.
Lufhansa confident that takeover will be approved
The German aviation giant reacted by saying it was "surprised" by the EU's probe into the merger but added that it was "confident" that in the end it would get approval from Brussels for the takeover.
"Due to the fact that since many years a joint venture exists between Lufthansa and Austrian Airlines the opening of the in-depth investigation is surprising for Lufthansa," the German flag carrier said in a statement.
Lufthansa signed a deal last year to acquire a 41.6 percent stake in Austrian Airlines on the condition that the Austrian state would cover 500 million euros of AUA's debt. Those terms, however, have enraged rival European airlines, among them France KLM, British Airways and Irish low-cost carrier Ryanair.
Lufthansa's deal with Austrian Airline would create Europe's biggest airline group in terms of passenger numbers. In 2008 the two airlines transported a total of 81 million passengers.
Editor: Chuck Penfold