In a statement, Competition Commissioner Neelie Kroes said that the EU body had 'serious doubts' after initial investigations had indicated that the takeover could result in reduced choices for customers for airline services and lead to higher fares.

The commission said it had decided to open an 'in-depth inquiry,' which would not pre-judge the final result of the merger investigation.

'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,' Kroes said.

She said it was 'essential' that airline consolidation should not deprive passengers of choices between airlines, competitive prices and other benefits of liberalization of air transport in the EU.

'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,' Kroes' statement said.

The reference to timely solutions comes amid concerns about time running out, after Lufthansa set a July 31 deadline for approval of its bid for the Austrian carrier.

Austrian Chancellor Werner Faymann said he did not think the commission's probe would put the deal in danger.

'I personally think the next two weeks will bring clarity,' Austrian press agency APA quoted him as saying in Vienna.

The deal would create Europe's biggest airline group in terms of passenger numbers. In 2008, Austrian Airlines and the Lufthansa group transported a combined 81.3 million passengers. The French-Dutch carrier Air France KLM counted 75.4 million guests in the same period.

Plagued by high fuel prices and the economic downturn, Austrian Airlines lost 429.5 million euros (605 million dollars) in 2008 and ended the year with some 1 billion euros of debts.

Austria's state holding agreed in December to sell its 42-per-cent stake in the flag carrier to Lufthansa for 366,000 euros, while the government in Vienna took over half of the debt to sweeten the deal.

The commission statement noted that the EU had previously cleared Luftansa's acquisitions of British Midland and Brussels Airlines, and noted that the German carrier controls other airlines such as Swiss, Air Dolomit, Eurowings and the low-cost carrier Germanwings. Lufthansa is a leading member of the Star Alliance of air companies.

According to the commission's initial investigation, the transaction would lead to competition concerns with respect to several routes between Austria and Germany, Switzerland and Belgium.

The statement noted that Lufthansa had 'proposed remedies,' which the commission found insufficient.

Beyond the inquiry on competition grounds, Brussels is separately mulling Austria's state support of its ailing flag carrier under EU aid rules.