Culture Secretary Matt Hancock announced that he has cleared Comcast's 22-billion pounds ($29.4-billion, 25.1-billion-euro) bid for all of Sky, which is best known for its live coverage of English Premier League football.
"I have concluded that the proposed merger does not raise public interest concerns and so I can confirm today that I will not be issuing an intervention notice," he told parliament.
Turning to Fox's lower offer for the 61 percent of Sky it does not already own, Hancock said he favoured "divesting Sky News" to a suitable third party to address public interest concerns identified by regulators, before giving it the nod.
Fox is seeking to buy the stake for 11.4 billion pounds but the long-running saga has been plagued by fears over media plurality and broadcasting standards -- and the influence of Australian-born US citizen Murdoch.
Murdoch owns major British newspaper titles The Times and The Sun and critics say obtaining full control of Sky News would give him too much influence in the news business.
'Bidding war on horizon'
The deputy leader of the main opposition Labour party, Tom Watson -- a vocal critic of Murdoch -- urged Hancock to "protect the interests of the public".
He said: "With Comcast now in the ring, the future for Sky is uncertain. A bidding war is on the horizon."
New York-listed Fox had already proposed in April to sell rolling TV news channel Sky News to Disney to clinch its takeover of Sky.
Comcast, which itself had lost out to Disney last year in an effort to buy 21st Century Fox, had last month formalised its Sky cash bid.
Hancock made his announcement in light of a final report from Britain's Competition and Markets Authority (CMA).
"The CMA concluded in line with its interim findings that the merger may not be expected to operate against the public interest on the grounds of a genuine commitment to broadcasting standards," Hancock said.
However he added: "I agree with the CMA that divesting Sky News to Disney, as proposed by Fox, or to an alternative suitable buyer, with an agreement to ensure it is funded for at least ten years, is likely to be the most proportionate and effective remedy for the public interest concerns that have been identified."
In a statement, Disney said: "We welcome today's announcement from the secretary of state and are ready to engage in any discussions requested by the secretary of state."
There will now be a 15-day consultation period to finalise details of the Sky News divestment before Hancock reaches his final decision on the Fox deal.
However, he also warned that -- should a Sky News sale not be attainable -- then his "only effective remedy would be to block the merger altogether".
Earlier this year, the CMA had provisionally ruled that Murdoch's planned takeover was not in the public interest on media plurality concerns.
Comcast's cash offer values each Sky share at 12.50 pounds, which is significantly higher than Fox's offer of 10.75 pounds.
Back in 2011, Murdoch failed to buy the British pay-TV group, then known as BSkyB, owing to a phone-hacking scandal at his now-defunct News of the World tabloid newspaper.
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