The tie-up, which was announced late last year and planned to be completed in early 2021, will create Stellantis, set to be the world's fourth-largest automaker in terms of volume, and number three in terms of sales.
The combined company unites brands such as Peugeot, Citroen, Fiat, Chrysler, Jeep, Alfa Romeo and Maserati into a global giant, each of which will continue under its own marque.
The European Commission said the decision to approve the deal came after it had carried out an "in-depth investigation" over concerns it might stifle competition.
Brussels was worried the merger could effect Europe's highly-profitable market for vans, which are technically easy to manufacture but sell at good prices.
To assuage those concerns, the commission said PSA would continue an agreement with Toyota to manufacture vans to be sold under the Japanese brand in Europe.
The statement said that the new firm would also facilitate access for competitors to its van repair and maintenance networks.
"We can approve the merger of Fiat Chrysler and Peugeot SA because their commitments will facilitate entry and expansion in the market for small commercial vans," EU competition chief Margrethe Vestager said.
"In the other markets where the two automotive manufacturers are currently active, competition will remain vibrant after the merger."
GROUPE PSA, FIAT CHRYSLER AUTOMOBILES, TOYOTA MOTOR
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