Spain's Telefonica won EU competition clearance for its €8.6 billion takeover of KPN's German mobile arm.
The deal gives it a stronger position in Europe's largest phone market and marks a milestone in telecoms consolidation.
Combining the German arms of KPN and Telefonica will create the country's largest mobile operator by customers.
This will give the Spanish firm more clout in the fierce competition with Vodafone and Deutsche Telekom's T-Mobile.
As the takeover will bring down the number of German mobile network operators from four to three, the Commission insisted that the Spanish group sold up to 30% of the merged company's network capacity and would also divest radio wave spectrum.
The Commission said these measures would allow for up to three new "virtual" operators, which rent access to bigger rival networks, and tend to sell cheaper mobile plans, to enter the German market.
"The remedies to which Telefonica commits ensure that the acquisition of E-Plus will not harm competition in the German telecoms markets," European Competition Commissioner Joaquin Almunia said in a statement.
Almunia's aim was to ensure that consumers in Germany - who already pay among the highest mobile prices in Europe - do not face rising prices after the merger.
The ruling by the European Union's powerful competition chief Almunia sends an encouraging signal to telecommunication groups who have lobbied for lighter regulation of mergers to allow them to bulk up after years of falling revenue.
Squeezed by a fifth year of falling revenues, thanks to tighter regulation, and facing demands to invest in faster networks, European telecoms groups are increasingly turning to consolidation.
All major deals must go to the European Commission for approval. It acts as a competition watchdog in the 28-member bloc and has said in the past that it would not stand for duopolies or monopolies in any country.
In May, the European Commission cleared Three Ireland's acquisition of Telefonica's O2 Ireland brand here as long as Three takes a number of steps to aid smaller competitors.