The deal valued Asda at $ 7.3 billion, and would have created a mega dealer with 2,800 stores and a total annual revenue of around $ 51 billion ($ 66 billion).
Sainsbury said the government ignored the "dynamic and highly competitive" nature of the UK market.
Should consumers lose out?
"The specific reason why we would merge was to lower the prices of customers," said CEO Mike Coupe in a statement.
Sainbury has promised to cut prices for a variety of groceries by 10% for the first three years The two companies had also promised to cover fuel prices at the gas stations, blocking the deal is "effectively taking $ 1 billion of the customer's pockets," Coupe said.
John Colley, a merger expert at Warwick Business School, asked the claim
"Within three years, it would have been impossible [for Sainsbury’s] to consider what prices would be without the merger," he said.
"The biggest recipients of this merger would be Asda-Sainsbury's shareholders," Colley said.
What should Walmart do?
"Our focus now continues to position Asda as a strong UK dealer delivering to customers," she said in a statement. "Walmart will make sure that Asda has the resources it needs to achieve it."
Stocks in Sainsbury fell 6% in London.