Insurance brokers Aon and Willis Towers Watson said today that they had agreed to terminate their $30 billion merger agreement and end their litigation with the US Department of Justice.

The deal would have put London-headquartered Aon ahead of the world's largest insurance broker Marsh & McLennan.

"Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the US Department of Justice," Aon's chief executive Greg Case said in a statement.

Aon will pay $1 billion as termination fee to Willis, it said.

In June, the US Department of Justice (DOJ) had sued to block the deal, saying it would reduce competition and could lead to higher prices.

The US Department of Justice had alleged that combining the two large insurance brokers would harm competition in reinsurance broking, retirement and pension planning and private retiree multicarrier healthcare exchanges.

A federal judge had narrowed the scope of the lawsuit last week, which came after Aon and Willis agreed to divestitures to win approval in the US and Europe after discussions with regulators.

The divestitures included Aon's US retirement unit, US retiree healthcare exchange and retirement business in Germany. Also included was Willis Towers Watson's global reinsurance business.

EU competition regulators had approved the merger earlier this month conditioned on some of the sales.

Aon ranks second and Willis fifth among US commercial insurance brokers in the US market, according to a survey by Business Insurance magazine.

The other largest brokers in the US are Marsh & McLennan, Arthur J Gallagher & Co and Alliant Insurance Services.

In April, insurance company Chubb said it was no longer looking at buying smaller rival, the Hartford Financial Services Group after the latter rebuffed Chubb's takeover bids post declining to engage in talks on the $23.24 billion buyout proposal.