The €1.8 billion ($1.9-billion) deal would see ArcelorMittal join forces with Italy's Marcegaglia to snap up the heavily indebted company, which employs 14,000 people.
"The European Commission has opened an in-depth investigation to assess the proposed acquisition of Ilva by ArcelorMittal under the EU merger regulation," said the commission, the executive of the 28-nation EU.
"The Commission has concerns that the merger may reduce competition for a number of flat carbon steel products," the commission said in a statement.
The Commission now has until 23rd March 2018 to decide on whether competition rules would be violated and approve or reject the proposed merger.
The EU's anti-trust commissioner Margrethe Vestager said European industries dependent on steel employ 30 million people and need to buy the material at competitive prices to compete globally.
"This is why we will carefully investigate the impact of ArcelorMittal's plans to buy Ilva on effective competition in steel markets," Vestager said in the statement.
ArcelorMittal has pledged to keep at least 10,000 employees "for the entire duration of the industrial plan" following negotiations with unions.
After news first leaked of the takeover, hundreds of employees at Ilva's site in the northwestern city of Genoa staged a protest in June.
Ilva's Taranto site in southern Italy is at the centre of a huge legal case in which experts cited by prosecutors have charged that 11,550 people have died from toxic emissions in seven years.
Italian bank Intesa Sanpaolo has planned to join the consortium before the deal is closed.
The offer includes plans to invest €2.4 billion in Ilva, with funds earmarked for upgrading industrial equipment and improving environmental standards.
ArcelorMittal has said Ilva would be an important strategic acquisition, offering a significant presence in a country where it has no primary steelmaking capacity.