The Australian competition watchdog has blocked a bid by Australian retail giant Woolworths to acquire mass merchant Kmart, in part because of concerns about the impact on the home entertainment retail market.

The listed retail company was seeking to buy the Coles Group's retail chains Officeworks and either Kmart or fellow mass merchant Target in a joint deal.

While the Australian Competition and Consumer Commission has no issues with Woolworths buying Officeworks -- a business supplies retailer - the regulator announced Wednesday that it would oppose a purchase of Kmart. The ACCC has also postponed making a ruling on the Target bid after receiving more information from both Woolworths and other interested parties.

The big stumbling block for the ACCC was competition issues between the 170-store Kmart and the Woolworths-owned Big W, a 141-strong chain, both of which are key players in the music and DVD markets.

Chairman Graeme Samuel says the department's investigation found that the proposed acquisition of Kmart would be likely to substantially lessen competition in a number of markets, including DVD.

The ACCC found that Kmart was Big W's closest competitor and there was intense competition between the two chains in the low-price sector of the DVD market.

Although other operators such as JB Hi-Fi operated in the same space, they did not provide as an effective a constraint on Big W as Kmart did.

Consequently, the ACCC ruled that the transaction would "substantially lessen competition in the DVD retail market, particularly in relation to competition for the retail of mainstream DVDs".

The regulator also examined the implications of the deal for other product categories such as music. While acknowledging that Big W and Kmart were close competitors in these sectors as well, the body believed pricing would be kept in check by competition from other retailers.

The ACCC delayed a decision on Woolworths' bid for Target, which is also active in the music and DVD markets. However, the Government agency says it still intends to announce its decision prior to the Coles shareholder vote on a rival acquisition proposal for the entire Coles Group from Wesfarmers. Shareholders are to vote on that $A19 billion ($17 billion) bid on Nov. 7.