The Co-op was yesterday given the go-ahead to take over Somerfield in a £1.6bn deal which will cement its place as the UK's fifth-biggest supermarket chain.

The Office of Fair Trading (OFT) made the decision after the retailer offered to sell 126 stores to address competition concerns in local grocery markets. The Co-op will now have around 3000 stores, sales of around £8bn and a market share of around 8%.

The OFT said the merger would "not give rise to competition concerns at a national level", adding that the retailer would now be in a stronger position to compete against the big four supermarket chains - Asda, Sainsbury's, Morrisons and Tesco.

A spokeswoman for the Co-operative Group welcomed the decision as "good news for consumers and good for competition".

But a spokesman for Consumer Focus Scotland expressed concern about the effect on local competition.

"Our concern would be how this impacts on Scottish communities, in some cases relatively small Scottish towns, where both Somerfield and Co-op operate at the moment," he said.

The Co-op recently unveiled a three-year plan to double its profits.

The Co-op has offered a programme to seek buyers up-front for stores before seeking final approval from the OFT. But if it goes ahead as planned, the store disposal plan will be the largest ever in the UK.

The spokeswoman for the Co-op said staff in the stores where a competition issue has been identified would be briefed "as a priority", before any further details were published.

She added: "In these locations, either the Somerfield store or The Co-operative store will need to be sold as a going concern to another food retailer in order to meet the requirements of the OFT. However, at this stage, it is not possible to say which store will be sold."

The takeover of 800 Somerfield stores is the latest by the mutual company, whose previous acquisitions include the Scottish convenience chain Alldays.

The Somerfield brand will disappear after the Co-op deal is completed.