The merger, which cost Microsoft $69 billion, is considered the biggest deal ever in the gaming industry.
Concerns have been raised that Microsoft could use its power over Activision, maker of the hugely popular “Call of Duty” and “World of Warcraft”, to harm its rivals.
The UK watchdog said competition could be reduced in games consoles, multi-game subscription services and cloud gaming services.
Microsoft and Activision said they would continue to cooperate with the Competition and Markets Authority and were given a September 8 response deadline.
Industry leader Sony has expressed concern over the future of “Call of Duty”.
However, Microsoft President Brad Smith has confirmed that the latest iterations of the video game will still be available on Xbox and PlayStation on the same day.
Despite concerns from the AMC, Activision chief executive Bobby Kotick still expects the deal to close within Microsoft’s fiscal year of June 20, 2023.
Microsoft, maker of the Xbox video console, has touted video games as “the most dynamic and exciting category in entertainment”.
The tech giant said a thorough review of the deal would build confidence in its closing, which would be good for competition.
The deal will add other heavyweight franchises such as “Overwatch” and “Candy Crush” to Microsoft’s roster, making it an even stronger competitor to Sony and Nintendo.