Microsoft's AU$104 billion takeover of Activision Blizzard has been blocked by the UK's antitrust regulator, the Competition and Markets Authority, over concerns that the deal would harm competition in cloud gaming.

The regulator's objections focus on the fact that cloud gaming needs an open and competitive market to drive innovation and choice, but the merger would give Microsoft a powerful position and a head start over its competitors in the sector. 

The regulator said remedies such as the sale of games like Call of Duty or promises to permit rivals to offer the game on their platforms would not solve its concerns. 

The regulator's decision comes ahead of decisions from the European Union and the US Federal Trade Commission. 

Activision Blizzard shares fell more than 10 per cent in pre-market trading, while Microsoft shares rose 7.4 per cent after separately reporting better-than-expected financial results.