Poundland said it would complete its £55 million takeover of rival 99p Stores by the end of this month after it received formal clearance from competition authorities.
It had faced an in-depth probe by the Competition and Markets Authority (CMA), which might have meant it having to sell off a clutch of outlets.
The CMA had initially been concerned about the lessening of competition in 80 areas of the country after the merger between Poundland and its biggest rival.
But it has now ditched its worries about the deal after agreeing that competition will be provided by big supermarket chains Tesco and Asda - as well as the likes of Poundworld and B&M.
The planned merger, announced in February, will create a network of 800 shops.
It was provisionally given the green light by the CMA last month and has now received formal final clearance.
The regulator said: "The CMA has concluded that the merger may not be expected to result in a substantial lessening of competition.
"Consequently, customers would not face a reduction in choice, value or quality of service as a result of the merger.
"The CMA found that, along with Poundworld, the companies are each other's closest competitors, but after the merger they will still face competition from other value retailers such as B&M, Home Bargains, Wilko and Bargain Buys, along with Tesco and, to an extent, Asda."
Poundland chief executive Jim McCarthy said: "We welcome the CMA's decision to clear the merger.
"We believe that the acquisition of 99p Stores will be great for both customers and for shareholders and we will now move to completion by the end of the month."
Earlier this year, Poundland reported a 19% rise in underlying pre-tax profits to £43.7 million for the year to the end of March as sales topped £1 billion for the first time – and set the scene for further expansion.
However, it said the first half of the current financial year would be "relatively subdued" compared with a period last year when it benefited from a late Easter, good weather and the loom band craze.
Poundland opened its first store in Burton-on-Trent in 1990. It floated on the stock market last year. It had 588 stores at the end of the 2014/15 financial year.
Family-run firm 99p Stores has agreed to sell out 14 years after it was founded with a single store in north London by entrepreneur Nadir Lalani.
It has grown rapidly in recent years following the demise of Woolworths in 2008 as bargain retailers have become regular fixtures in UK high streets.
The chain has grown to 251 sites, trading as 99p Stores and Family Bargains, which serve more than two million customers.
Shore Capital analyst Clive Black said receiving final clearance would be pleasing for Poundland after "a somewhat frustrating and time consuming process with which to gain UK regulatory approval".