Legions of lobby groups and small shop owners will be celebrating today after the Office of Fair Trading referred the dominance of Britain's top supermarket groups to the Competition Commission for a formal investigation.

As it published its long-awaited decision to recommend the second inquiry by the Commission in the past five years, the OFT said more than 1,200 interested parties had made submissions over a four-week consultation period that began in March.

These ranged from businesses and lobby groups, to individual high street shoppers - with most of them calling for an investigation into the £95 billion British grocery market.

The OFT, led by chief executive John Fingleton, said there were a number of concerns that it felt warranted a full-blown inquiry, including "significant" land holdings among the big retailers such as Tesco, Wal-Mart owned Asda, J Sainsbury and Safeway owner Wm Morrison.

As well as the current planning regime acting as a potential barrier to entry for new players, the OFT has noted that in some cases supermarket attach restrictive covenants when they sell-on sites.

And the watchdog added that: "There is also evidence to suggest that the big supermarkets' buying power has increased, and that some aspects of their pricing behaviour - such as below-cost selling and price flexing - could distort competition.

Mr Fingleton said: "This reference will allow the Competition Commission to examine in detail all aspects of the grocery sector, ensuring that consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market."

The OFT reserved the right to expand the scope of the Commission's investigation to include other issues, as the already highly competitive grocery market comes under ever closer regulatory scruting.

Today's recommendation marked an embarassing reversal of its original decision not to ask the Commission to investigate the market. The latest inquiry could last up to two years but is expected to be completed comfortably before then.

However, with speculation rising that the Commission is unlikely to propose a wholesale clampdown on the big grocers, the supermarkets reacted calmly to today's development, which had been widely expected since the OFT said it was considering making the referral in March.

Tesco, which commands about 30 per cent of the market, noted that the watchdog itself had concluded that consumers were benefiting from lower prices and that it was confident the Commission would endorse this view.

Sir Terry Leahy, the chief executive, said; "We know that up and down the country millions of ordinary consumers vote with their feet when they go shopping. They have a choice and it is one they exercise every day."

The last investigation five years ago found no evidence of anti-competitive practices by the retailers.

However, the landscape of the sector has dramatically changed since then, following the acquisition of Safeway by Wm Morrison at the end of 2004.

Sainsbury's, which was nearly brought to its knees two years ago amid tumbling profits and a lack of direction, has also found itself reinvigorated under chief executive Justin King.

Most of the supermarkets have also moved back into the high street, opening small convenience stores that compete even more fiercely with local shopowners.

Groceries, defined by the OFT as food, pet food, drinks, cleaning products, toiletries and household goods, account for nearly half of all retail sales.

Total grocery sales last year reached nearly £95 billion, accounting for 13 per cent of all household spending in the UK.

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