ScotRail runs regional services and sleeper trains to London

It will result in one organisation running most of Scotland's railways and many local bus routes.

But the Competition Commission said FirstGroup must agree to undertakings which will control its ability to raise fares and alter services.

FirstGroup is expected to take over the ScotRail franchise from National Express in October.

The Competition Commission said its decision could result in higher fares and poorer bus services, especially around Edinburgh and Glasgow.

But it believes that if the group agrees to the undertakings, which have yet to be finalised, then the travelling public will be protected.

We believe that they will ensure that passengers do not lose out as a result of the merger Professor Paul Geroski Competition Commission

The company will have to agree to restrictions on altering fares and services on certain routes.

And it will also have to agree to steps to prevent rival bus companies from being unfairly disadvantaged.

FirstGroup said it was happy to give the Competition Commission such undertakings and would now start working with it on the detail.

Chairman of the Competition Commission, Professor Paul Geroski, said: "We have concluded that, should FirstGroup take control of the Scottish rail franchise as planned, it would lead to a substantial lessening of competition.

"As this could have an adverse effect on some passengers on a small number of routes, mainly in Glasgow and Edinburgh, we've identified behavioural undertakings as the most effective and appropriate way to deal with these concerns.

"We believe that they will ensure that passengers do not lose out as a result of the merger."