The Department of Media gave its blessing to the multi-billion-dollar deal after News Corp agreed to spin off BSkyB's influential Sky News channel to ease competition concerns amongst the industry and politicians.
The Conservative-led coalition government, often charged with being too close to Murdoch, announced a final consultation period until July 8 to consider further undertakings designed to guarantee the editorial independence of Sky News.
It avoided launching a prolonged investigation into the deal, which could have pushed the acquisition price higher as the British pay-TV group continues to perform strongly, adding new customers and selling new products at a heady pace.
Media conglomerate News Corp also owns the Times of London and its sister Sunday Times, as well as top-selling daily tabloid The Sun and Sunday tabloid the News of the World, which is at the center of a police investigation into phone hacking.
Linked to that, several celebrities are suing News Corp's British newspaper arm for eavesdropping voicemail messages to harvest front-page scandal material, leading some critics to say any BSkyB deal should be stopped at least until police investigations were complete.
Global online campaigning group Avaaz said it might seek to overturn the government's decision through a legal challenge, and rival media companies expressed disappointment.
Culture minister Jeremy Hunt said in a statement: I am aware of the huge interest in the proposed merger.
I could have decided to accept the original undertakings but a number of suggestions were made ... particularly around editorial independence, business viability and the articles of association.
The proposals set guidelines around who can become an independent director at the new Sky News company, such as stopping anyone who has worked for News Corp within the past five years taking the role.
Independent directors will also have to be present at board meetings if decisions on editorial issues are taken.
News Corp is not only a majority owner of BSkyB but was instrumental in creating the company, while News Corp chief executive Rupert Murdoch's son James is an ex-CEO and currently non-executive chairman of BSkyB.
These proposals makes the original deal more secure, media consultant Steve Hewlett told Reuters. What it won't do is fundamentally alter the views of people who, for their own commercial or other reasons, are passionately opposed to it.
But are they in a position to stop it? I doubt it.
Avaaz, which has gathered almost half a million electronic signatures for a petition calling on the government to reject the deal, said: The multi-year denials of phone hacking, followed by a belated admission of wrongdoing, show that News Corp can't be trusted to implement the undertakings.
Avaaz's lawyers are reviewing the revised undertakings and the group may well apply for permission to judicially review Hunt's decision.
News Corp and BSkyB can now negotiate terms. Large BSkyB shareholders have begun to publicize the price they want.
News Corp will be keen to avoid fuelling an emerging reputation as a company that overpays, following expensive acquisitions of Wall Street Journal publisher Dow Jones & Co and social network Myspace.
On Wednesday, it sold Myspace for $35 million, compared with the $580 million it paid in 2005 for the once-hot site.
A year ago, News Corp said it had offered 700 pence per share for the 61 percent of BSkyB it did not already own, or 7.8 billion pounds ($12.5 billion). BSkyB's independent directors demanded at least 800 pence.
BSkyB shares were flat at 847.5 pence at 0911 GMT.
We expect a bid around 850 pence plus final dividend, Jefferies analyst Nick Bell said in a note, adding he expected a final green light for the deal soon after July 8 and a possible agreed bid by July 29.
Although a number of shareholders have publicly demanded well in excess of 900 pence we see this as unlikely, he said, noting the lack of rival bidders, the high multiple on which the stock was already trading and the risks of a consumer slowdown.
The takeover battle sparked a debate about the dominance of Murdoch-owned media and many have not been reassured by the ruling which will see News Corp spin off Sky News but remain the main funder and 40 percent owner.
Rival media groups, still recovering from global recession which hammered advertising -- their key revenue source -- have complained, as they fear News Corp's financial clout.
We continue to believe this matter should have gone before the Competition Commission for a full inquiry, an alliance of companies opposed to the deal, including Guardian Media Group, Trinity Mirror
Marc Israel, competition partner at law firm Macfarlanes, said Hunt had been perfectly within his rights not to refer the matter to the Competition Commission for a lengthy review.
Ironically, for those opposed to the deal, this outcome may be better than a review by the Competition Commission which could have cleared it unconditionally after an in-depth review.
($1 = 0.626 pound)
(Editing by Dan Lalor)