Australia's competition watchdog on Monday rejected National Australia Bank's proposed 12.2 billion US dollar takeover of AXA Asia Pacific Holdings, but did not oppose a rival bid by Australia's AMP.

The Australian Competition and Consumer Commission (ACCC) said the NAB and AXA APH merger did not raise concerns in superannuation, insurance and banking, but it could lessen competition in retail investment platforms.

"At the heart of the ACCC's decisions are concerns about innovation, and as a consequence future rigorous and effective competition between retail investment platforms," commission chairman Graeme Samuel said.

"Allowing NAB and AXA to merge would significantly diminish incentives to compete for retail investment platforms used by investors that have complex financial needs," he said in a statement.

The body said an AMP-AXA merger would not have this effect, because AMP did not own its own wrap platform -- a portfolio management tool that allows clients to move their investments between asset classes more easily -- but used two supplied by other banks.

"The ACCC concluded that because AMP does not own its own wrap platform it is constrained in its ability to compete aggressively," Samuel said.

Last month, France's AXA SA and NAB agreed on a 13.29 billion Australian dollar takeover of financial services group AXA Asia Pacific (APH) under which the French company would take its subsidiary's Asian arm while NAB would control its Australian and New Zealand businesses.

The transaction would have seen NAB become one of Australia and New Zealand's leading wealth management groups, while AXA SA would have gained a valuable presence in Asia.

The ACCC's blocking of the NAB bid now brings the deal back to AMP -- the initial contender for AXA APH's Australia and New Zealand operations until NAB made its surprise offer in December.

NAB made no immediate comment on the ACCC decision, but AXA APH said the Australian bank could enter further talks with the competition watchdog.

However, if NAB is unable to reach an acceptable agreement with the ACCC within six weeks, the deal between NAB, AXA SA and AXA APH can be terminated.

ACCC chairman Samuel said the latest decision did not mean a rejection of any further consolidation within the Australian banking system -- currently dominated by four big banks.

Samuel told Dow Jones Newswires the "populist notion that we are concerned about the big banks and we would oppose any transaction involving the big banks is not something ... that we take into account and is not part of our consideration."

AMP welcomed the regulator's findings, which came as a surprise to the market as it had expected the NAB-AXA tie-up to get the go-ahead.

"AMP continues to believe it can put forward a proposal that is financially disciplined and will create value for its shareholders, and which the independent directors of AXA APH will be able to recommend to their minority shareholders," it said in a statement.

Had it been approved, the NAB-AXA APH deal was in line to become the biggest in Australian financial services, beating Westpac Banking Corp's purchase of St. George Bank for 12.37 billion Australian dollars in May 2008.