The UK competition regulator has told Rupert Murdoch his $15 billion takeover of Sky was not in the public interest and would be blocked unless there was a way to prevent the tycoon from influencing the network's news output.
The initial ruling complicates a plan by Walt Disney to buy the majority of Mr Murdoch's assets, including Sky.
Disney had hoped that Mr Murdoch would have taken full control of the European broadcaster by the time the US group completed its takeover.
Mr Murdoch's Twenty-First Century Fox agreed to buy the 61% of Sky it did not already own in December 2016.
This re-ignited a political row about the influence he wields through his ownership of newspapers and his current 39% stake in Sky, the biggest pay-TV platform.
The UK government, which will take the final decision on the deal, asked the Competition and Markets Authority to judge if Mr Murdoch had too much influence in Britain and would uphold broadcasting standards.
The CMA said today that the deal as proposed went against the public interest because it would give the Murdoch family too much control over the provision of news.
It said possible ways to resolve its concerns about Mr Murdoch's influence in Britain could include spinning off or divesting Sky News, or insulating Sky News from Fox's influence.
A third option is to block the deal outright.
The regulator did however clear Mr Murdoch on the issue of broadcasting standards.
It said that recent allegations of sexual harassment at his Fox News organisation in the US did not call into question his commitment to upholding standards in Britain.
"We have provisionally found that if the Fox/Sky merger went ahead as proposed, it would be against the public interest," the CMA's Anne Lambert said.
"It would result in the Murdoch family having too much control over news providers in the UK, and too much influence over public opinion and the political agenda," she added.
Fox said it was disappointed about the provisional judgment, although it welcomed the decision that it had a genuine commitment to broadcasting standards.
It said it would continue to engage with the CMA ahead of the final report in May, and it anticipated approval of the deal by June 30.
Sky shares rose 2% in London trade this morning.