The deal estimated Asda £ 7.3 billion (9.4 billion) and would have created a major retailer with 2,800 branches and a combined turnover of around £ 51 billion ($ 66 billion).
Sainsbury said the verdict ignored the "dynamic and highly competitive" nature of the UK market.
Will the buyers lose?
"The concrete reason for the merger was to lower prices for customers," said CEO Mike Coupe in a statement.
Sainbury's had promised to lower prices for a range of everyday products by 10% in the first three years after the merger. The two companies also committed to limit fuel prices at their gas stations. Blocking the deal means "effectively pulling £ 1 billion out of customers' pockets," Coupe said.
John Colley, a merging expert at Warwick Business School, challenged this claim.
"Over three years, it would have been impossible to judge [for Sainsbury’s] what prices would have been without the merger," he said.
"The main beneficiaries of this merger would have been the shareholders of Asda-Sainsbury," said Colley. What will Walmart do?
"Our focus now is to continue to position Asda as a strong UK retailer serving customers," she said in a statement. "Walmart will ensure that Asda has the resources to do that."
Sainsbury's shares fell 6% in London.