Facebook parent company Meta has been ordered by the UK competition watchdog to sell the gif creation website Giphy, the first time the regulator has moved to block a deal struck by one of the Silicon Valley giants.

The Competition and Markets Authority, which provisionally ruled in August that a sell-off was the only way to resolve competition concerns, said the move would “protect millions of social media users” and stop Facebook “increasing its significant power in social media”.

The CMA launched an investigation last year into Meta’s $400m (£290m) takeover of Giphy, the largest supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter, after identifying competition concerns.

The regulator said Meta could cut off the supply of gifs to rivals, or demand more user data from them in order to keep using Giphy. The CMA said that a takeover would also remove a potential competitor from the £7bn UK display advertising market, where Facebook is the biggest player accounting for about half the market.

The CMA said it was “particularly concerning” that Facebook terminated Giphy’s advertising services, which the company was poised to expand, at the time of the merger.

“By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising,” said Stuart McIntosh, chair of the independent inquiry group that carried out the CMA’s in-depth investigation into the deal.

“Without action, it will also allow Facebook to increase its significant market power in social media even further, through controlling competitors’ access to Giphy gifs.”

Meta, which is considering appealing against the decision, said that the deal would be good for Giphy, consumers and businesses.

“We disagree with this decision,” said a spokesperson for Meta. “We are reviewing the decision and considering all options, including appeal. Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources. Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and partners in the UK and around the world who use Giphy every day, providing more choices for everyone.”

Responding to the CMA’s provisional findings in August, which indicated that a sell-off of Giphy was the only option, it accused the UK regulator of “engaging in extraterritorial over-reach”.

Meta said at the time that blocking the deal to buy Giphy, which is based in New York and does not have operations in the UK, would “send a chilling message to startup entrepreneurs: do not build new companies because you will not be able to sell them”.

The CMA and Meta have been at loggerheads through the investigation process. In October, the CMA moved to fine Meta £50.5m for “deliberately” refusing to supply information to prove it was following an order to keep Giphy’s business separate from Facebook during the investigation period.

“This should serve as a warning to any company that thinks it is above the law,” said Joel Bamford, a director of mergers at the CMA, at the time.