Prospects for the deal had slumped following the LSE's announcement on February 26 that it would not seek to divest its majority stake in Italian fixed income trading platform, MTS, as per the European Commission's request.
Would-be merger partner, Deutsche Boerse, appeared to be caught off guard by the LSE's unilateral decision as markets and regulators were, with many seeing the London exchange's intransigence as an indication of it developing cold feet about the tie-up.
In early January, the LSE had agreed to sell its clearing operation LCH Clearnet to France's Euronext for 510 million euros ($550.21 million), in a move the British exchange erroneously believed would be sufficient to soothe the Commission's anti-trust concerns.
"The solution that we were offered was not viable," Vestager told CNBC on Wednesday, referring to the proposed LCH Clearnet sale, which has now been officially called off.
"You have to do more to solve this problem and they couldn't do more to meet that demand so here we are today with that prohibition," the Danish national stated before adding that she considered it "highly likely" that the deal could have proceeded if a sale of MTS had been effected.
The disintegration of the deal is seen as a negative development for attempts to plow ahead with the European Commission's ambitious Capital Markets Union program, which seeks to create mechanisms over the long-term to improve the interconnectivity and provision of capital between member states.
"We will continue to be fragmented, and this is a big cost for Europe, and a win for the U.S.," said Karel Lannoo, chief executive of the Centre for European Policy Studies, in an email to CNBC on Wednesday.
Both companies' stock prices ticked higher following the announcement of the veto, with shares in the LSE up by 2.84 percent by midday London time and those of Deutsche Boerse up by 1.40 percent.
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