A $ 40 billion (£ 29 billion) acquisition of British chip designer Arm by US giant Nvidia will be the subject of an in-depth investigation by the UK competition regulator.

Citing security and competition concerns, digital secretary Nadine Dorries told the Competition and Markets Authority (CMA) to initiate a phase two investigation.

A first investigation by the CMA found “significant competition problems”.

Nvidia said, however, that the merger will stimulate competition and innovation.

The company said in a statement: “We will continue to work with the UK government to resolve its concerns.”

“The phase two process will allow us to demonstrate that the transaction will help accelerate Arm and increase competition and innovation, including in the UK,” said Nvidia.

The chips based on Arm’s designs are used in a wide range of applications, including silicon within many Apple products.

Announcing her decision, Ms Dorries said: “Arm has a unique place in the global technology supply chain and we need to make sure the implications of this transaction are fully considered.”

“The CMA will now report to me on the reasons for competition and national security and advise on next steps.”

In a letter to both Arm and Nvidia, setting out the reasons for the decision, officials gave more details on national security concerns.

He suggested the deal could see a “potential reduction in the UK’s autonomy to develop, operate or support defense and security systems using Arm IP (intellectual property).”

The agreement also addresses a competition investigation by the European Commission.