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Australia's competition regulator has approved plans to create the world's largest aluminium firm.

The Australian Competition and Consumer Commission (ACCC) said it would not intervene in the proposed acquisition of Canada's Alcan by Anglo-Australian mining company Rio Tinto.

Australia's decision to clear the proposed takeover comes after Rio Tinto revealed yesterday that it had gained approval for the deal from the European Commission.

In a statement the ACCC said it had decided that competition in bauxite production was unlikely to be significantly affected by the merger. Rio Tinto and Alcan both operate bauxite mines in Queensland.

Regulators said competition in the production of other aluminium products in Australia was also unlikely to weaken substantially as a result of the planned tie-up between the two firms.

"The ACCC considered that for all aluminium products competitive tension would remain in the domestic market and that ultimately the threat of imports would also be likely to act as a competitive constraint," said ACCC chairman Graeme Samuel.

Rio Tinto welcomed the announcement in a separate statement today.

The world's third largest miner plans to take control of Alcan in a $38.1 billion dollar (£18.7 billion) deal.

It is hoped that the takeover will be complete by the end of the year, with the new company set to be based in Montreal – trading under the name of Rio Tinto Alcan.