The U.S. tech giant led a $575 million funding round for the London-based start-up earlier this year. While the exact value of Amazon's stake hasn't been disclosed, reports have said the company invested $500 million into Deliveroo as part of the deal.
In its announcement Wednesday, Britain's Competition and Markets Authority said the deal "raises serious competition concerns" and "may require an in-depth investigation."
"If the deal were to proceed in its current form, there's a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop," Andrea Domes da Silva, executive director of the CMA, said in a statement. "This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced."
Amazon has previously made its own foray into the food industry with a service called Amazon Restaurants, but the firm decided earlier this year to shut it down. It had already closed operations of the takeout and delivery service in Britain late last year.
The CMA said that evidence from "internal business documents" showed Amazon still has a "strong, continued interest" in the food delivery space and could still re-enter the market. The watchdog also said it felt the deal could also damage competition in the delivery of groceries online. Both companies now have five working days to address those concerns.
"A homegrown U.K. business like Deliveroo should have broad access to investors and supporters," a spokesperson for Amazon said in a statement. "Amazon believes that this investment funding will lead to more pro-consumer innovation by helping Deliveroo continue to build its world-class service and remain competitive in the restaurant food delivery space by creating more highly-skilled jobs, innovating in the restaurant food delivery sector, and developing new products for customers."
Deliveroo said it had been working with the competition regulator and planned to continue doing so.
"We are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers," a spokesperson for Deliveroo said in a statement. "Deliveroo is a British company operating right across the country and this investment will be particularly beneficial to the UK economy."
Founded in 2013 by a former investment banker, Deliveroo is of Europe's fastest-growing start-ups and has become a major player in the food delivery space. It competes with the likes of U.K. firm Just Eat — itself a target of a takeover battle between Takeaway.com and Prosus — and Uber Eats.