The Cooperation and Competition Panel has said plans to create the biggest single trust in the NHS would break competition rules.

The advisory body said the benefits from the Barts and the London, Whipps Cross and Newham hospitals merger “do not outweigh the potential drawbacks”.

The CCP said patients using Newham Hospital for routine elective and non-elective care risked losing out because Whipps and Barts would not be alternative providers but part of the same organisation.

The panel’s proposed remedies include removing Newham Hospital from the partnership or commissioners retendering some services at Newham.

The trust should provide “fair and reasonable access to third parties should they win tenders to provide these services”.

CCP director Catherine Davies said: “We know there are some difficult challenges facing healthcare services in north-east London but these proposals don’t necessarily provide the best solution.

“As well as the reduction in current choice, having one very large provider in north-east London with revenues of £1.1bn also risks stifling the development of alternative services and providers in future.”

The CCP is an advisory body and its judgement will feed into the decision of the Department of Health’s transaction board, expected in the new year. The final decision lies with health secretary Andrew Lansley.

 The CCP is now consulting further on “appropriate modifications to the current proposals” and has asked for responses by 6 January.

The merger partners said the CCP had underestimated the long-term merger benefits and “over-stated the effect of competition loss in an urban environment with excellent transport links to multiple hospitals and alternative providers”.

Peter Morris, chief executive of Barts and the London, and the lead chief executive for the merger, said: “The merger will secure the long-term viability of local services at both Newham and Whipps Cross, and will more rapidly realise substantial back office savings, improve services for east Londoners and give us new opportunities to improve health and reduce health inequalities in east London.”

The three trusts set themselves a challenging timetable which may now be difficult to follow. The intention was to merge the three organisations in April next year and then apply for foundation status. NHS London gave its approval to the merger on Tuesday.