Britain's competition watchdog has launched an investigation into the US$40bn (GBP29.5bn) takeover of the UK-based chip designer Arm by the US company Nvidia, media reports said.

The Competition and Markets Authority (CMA) has called for interested parties to submit views on the contentious deal before the launch of a formal investigation later this year, The Guardian reported.

Arm Holdings, which employs 6,500 staff including 3,000 in the UK, is a global leader in designing chips for smartphones, computers and tablets. California-based Nvidia, a graphics chip specialist, announced its plan to buy the British tech group from Japan's SoftBank in September, the paper noted.

SoftBank had acquired Arm for $32bn in 2016, when the Japanese company took advantage of the fall in value of the pound after the Brexit vote. Arm is based in Cambridge but has operations in a number of UK towns and cities, including Manchester, Belfast and Warwick.

Its chief executive, Simon Segars, acknowledged at the time of the Nvidia deal that it could take up to 18 months to win approval from regulators around the world, The Guardian said.

CMA chief executive Andrea Coscelli, said: "The chip technology industry is worth billions and critical to many of the products that we use most in our everyday lives. We will work closely with other competition authorities around the world to carefully consider the impact of the deal and ensure that it doesn't ultimately result in consumers facing more expensive or lower quality products.

According to the paper, the CMA said it would examine the possible effect of the deal on competition in the UK and whether Arm had an "incentive to withdraw, raise prices or reduce the quality of its intellectual property licensing services to Nvidia's rivals".

If the investigation finds that the deal breaches UK competition rules, the CMA's powers include the authority to block the takeover, The Guardian said.

In October, Hermann Hauser, co-founder of Arm, wrote to the House of Commons foreign affairs committee arguing that if the deal was allowed to proceed, the combined business would become the next US tech monopoly alongside companies such as Google and Facebook, the report noted.

He had argued, because Nvidia is one of more than 500 users of Arm designs worldwide – which include Apple, Samsung and Qualcomm – becoming the Cambridge based business' parent company would destroy Arm's "even handed" model and ultimately kill the world-leading British tech company.

The Guardian said Hauser also told the BBC last year the deal would be "an absolute disaster for Cambridge, the UK and Europe", adding Nvidia would inevitably decide to relocate Arm to the US, leading to lost jobs.

According to the report, Hauser has said the government should use its powers to prevent the takeover, but has also backed indefinite legally binding conditions as an alternative. These include a guarantee to keep Arm's staff in Cambridge, Belfast, Manchester and Warwick, and a promise that Nvidia does not get preferential treatment on new versions of the designer's chips.

The Guardian added UK shadow (Labour) business secretary, Ed Miliband, has also expressed concerns about the deal, and called on the government to intervene to prevent parts of Arm from being moved out of the UK.