A judge has prevented the £337m merger of two British computer software companies to prevent them dominating the planned national electronic patient record system for the NHS.

The merger would have given them a near monopoly in the provision of computer software for a medical record system for every person in England, accessible anywhere a patient receives treatment.

It comes as the National Audit Office launches a preliminary inquiry into the awarding of £2.3bn-worth of computer contracts for the NHS - the biggest and most ambitious such contracts ever awarded in Britain. Tony Blair is expected to announce the first two contracts this week.

There is growing disquiet among MPs that Whitehall is being ripped off by companies that can make millions out of their dominance of the market and lack of experience and knowledge of the civil servants that negotiate with them. Recent scandals highlighted by MPs include the "spectacular failure" of the launch of Gordon Brown's tax credit system by the Inland Revenue, the child support agency's new payment system and the failure of a new computerised courts system.

The court ruling - made by Sir Christopher Bellamy, president of the competition appeal tribunal, at the high court last week - is also a blow to the Office of Fair Trading which had allowed the merger, with support from senior civil servants at the Department of Health. It is the first time the regulatory body's judgment has been overturned by the courts, and it could have repercussions for other decisions.

The two companies, iSOFT and Torex, already had dominant positions in the NHS. iSOFT had sales of £74m a year in the UK and EU, mainly as a supplier to hospitals. Torex supplied software to GPs, laboratories and hospitals, with £65m of sales.

A merger would have given the two companies a 44% share of the existing electronic patient record market, compared with the 14% share of McKesson, their nearest rival. Their share of hospital laboratory software market would have been 56%. In Scotland and Wales, the new company would have had a monopoly.

Sir Christopher described the OFT's decision to approve the merger as both "surprising and unlawful".

The OFT has decided not to appeal against the decision. Instead it will look again at the proposed merger. It has also had to change its advice to other companies as a result of the ruling.