By Foo Yun Chee

BRUSSELS (Reuters) -Booking Holdings' proposed 1.63 billion euro ($1.8 billion) acquisition of Swedish peer ETraveli Group is set to be vetoed by EU antitrust regulators because of concerns about the U.S. online travel agency's market power, three people familiar with the matter said on Friday.

Booking, whose brands include Booking.com, Rentalcars, Priceline and Agoda, announced the proposed acquisition of ETraveli, owned by private equity firm CVC Capital Partners, in November 2021.

The U.S. online travel agency intends to challenge the EU ban and also renew its flight deal with ETraveli for five years in order to expand its flight business, a person close to the company said. Such a move underscores its determination to expand its flight business despite the EU veto.

The European Commission warned in June that the deal could reinforce Booking's dominance in the sector for hotel online travel agencies and boost its bargaining power with hotels.

It also said the deal may allow Booking to expand its ecosystem of travel services which include flights, accommodation, car rentals and attractions.

The Commission, which is scheduled to decide on the deal by Sept. 27, declined to comment.

The UK competition watchdog cleared the deal without conditions last year.

Booking in July offered to show multiple hotel options to customers who book flights on its site in a bid to address EU regulatory concerns. The proposal is akin to Microsoft's offer to show users a choice of web browsers to settle an EU antitrust investigation in 2009.

The Commission subsequently sought feedback from Booking's rivals and customers such as hotels, receiving more than a hundred responses that may have strengthened its case for a veto.

The Financial Times was the first to report the Commission's veto.

($1 = 0.9222 euros)

(Reporting by Foo Yun Chee; editing by David Evans, Kirsten Donovan)