The Competition and Markets Authority (CMA) said its in-depth investigation into the proposed tie-up, first announced in January, had raised no competition concerns - with shares in both firms surging on the news.
Tesco is the UK's largest grocery retailer by some margin, while Booker is the largest wholesaler - supplying many of Tesco's competitors.
But the CMA said it was clear the two firms did not currently compete head-to-head in most of their activities - such as supplying the catering sector, which accounts for 30% of Booker's business.
It had earlier raised fears that more than 350 local areas, where there is an overlap with Booker-supplied franchises such as Premier (BSE: 500540.BO - news) , Londis, Budgens and Family Shopper, could face "worse terms".
However, the watchdog found there was sufficient competition to defeat any attempt by the merged company to raise prices or reduce service levels either in retail or wholesale.
It also decided the merger could bolster competition in the wholesale sector, rather than dent it as many of Booker's competitors argued, because the firm could benefit from improved suppliers' terms - with the savings being passed on to its own customers.
The CMA said the competitive landscape looked generally rosy because Booker had less than a 20% share of the UK grocery wholesaling market.
The merger is subject to shareholder votes following a final decision next month by the CMA.
Simon Polito, who chaired its inquiry group, said: "Our investigation has found that existing competition is sufficiently strong in both the wholesale and retail grocery sectors to ensure that the merger between Tesco and Booker will not lead to higher prices or a reduced service for supermarket and convenience shoppers."
Tesco responded: "We look forward to creating the UK's leading food business, bringing together our combined expertise in retail and wholesale.
"This merger has always been about growth, and will bring benefits for independent retailers, caterers, small businesses, suppliers, consumers, and colleagues."
Its shares were 6.5% higher at 188p in afternoon trading on the FTSE 100 while Booker's were almost 7% up.
However, Bernstein retail analyst Bruno Monteyne suggested it was not yet a done deal as 75% of Booker investors had to support it for the merger to go ahead.
He said: "With (Other OTC: WWTH - news) a higher shareholder hurdle and the Tesco share price below the level of when the bid was made - around £2 - Booker shareholders may argue for a higher share price."