The Australian Competition and Consumer Commission has said it will not oppose New Zealand dairy giant Fonterra's proposed acquisition of Australian dairy products firm National Foods, providing Fonterra divests certain assets in Western Australia post merger.

"The ACCC was concerned by competition issues in the market for raw milk, fresh milk and flavoured milk in Western Australia," said ACCC chairman Graeme Samuel.

"The undertaking which Fonterra has offered is aimed at ensuring competition in the raw milk, fresh milk and flavoured milk markets in Western Australia as well as those markets that rely on the supply of raw milk in both the near future and in the longer term," he added.

Fonterra welcomed the decision, and said the ACCC's ruling that it would require the divestment of certain assets in the Western Australian milk market was consistent with its expectations.

Fonterra CEO Andrew Ferrier said the company was pleased with the decision. "This is an important milestone in our bid for National Foods," he said.