Canada's Competition Bureau said on Friday Royal Bank of Canada's (RBC) proposed acquisition of HSBC's domestic unit for C$13.5 billion ($10 billion) is unlikely to substantially hurt competition.

Still, the regulator found that the deal would "result in a loss of rivalry between Canada's largest and seventh largest banks."

The deal is expected to help RBC consolidate its leading position in one of the world's most concentrated banking markets, where the top six lenders control about 80% of banking assets.

RBC said the bureau's opinion is a key milestone in the approval process for the deal that was announced in Novemberlast year and that it would collaborate with the ongoing reviews by OSFI and the Minister of Finance.

HSBC did not immediately respond to Reuters' request for comment.

The favorable regulatory view is a big boost for RBC and comes against the backdrop of growing resentment among consumer activists against the country's concentrated banking sector.

The deal is also subject to approval from the finance ministry, which had in July extended the consultation period for review due to a technical error that prevented it from receiving some submissions from stakeholders by email.

It has been seeking comments on how the deal could impact consumers and the stability of the banking sector.

The last time a deal of this size was attempted in Canada was in the early 1990s, when RBC wanted to acquire rival Bank of Montreal, but was blocked by regulators.

(Reporting by Manya Saini in Bengaluru and Nivedita Balu in Toronto; Editing by Arun Koyyur)