British Airways and Iberia gained EU regulatory approval on Wednesday for their merger to create the world's third-largest airline.

The carriers hope the merger will enable them to compete better with rivals Lufthansa and Air France, as well as low-cost carrier Ryanair. It will also clear the way for a tie-up with American Airlines.

The European Commission, the EU competition regulator, said the merger would not significantly impede competition in the market.

"The Commission's investigation confirmed that the merged entity will also continue to be subject to competition from a number of competitors on the markets for air cargo transport and ground handling services," the EU executive said in a statement.