In a statement to parliament, media minister Karen Bradley said she had ordered the investigation in the public interest "on grounds of media plurality and commitment to broadcasting standards".
Media tycoon Rupert Murdoch's Fox announced in December it had reached a formal agreement to buy the 61-percent stake in Sky which it does not already own.
The deal, valued at 11.7 billion pounds (USD 14.4 billion), would expand the footprint of the media- entertainment powerhouse owned by Murdoch.
The takeover bid raised fears that it could give the Murdoch family too much control over the British media landscape and reduce media plurality.
21st Century Fox is one of the world's largest entertainment companies, with a vast portfolio of cable, broadcast, film, pay-TV and satellite assets across six continents.
Sky broadcasts the 24-hour Sky News channel, blockbuster movies and live English Premier League football, and also provides internet and telephone services.
Back in 2011, Murdoch was forced to abandon his previous takeover bid of Sky - then known as BSkyB - as controversy raged over the hacking of the telephones of celebrities and crime victims by his tabloid the News of the World, which was subsequently shut down.
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