Eurotunnel has been given six months to stop running its MyFerryLink service from Dover to Calais.
Following a long-running battle with competition authorities, the Channel Tunnel operator has been told it must cancel the route or find another owner for it.
The Competition and Markets Authority said since Eurotunnel purchased the business from SeaFrance in 2012, there have not been enough changes in the marketplace to persuade it that there is enough competition on the route.
Alasdair Smith, chairman of the Eurotunnel Remittal Group and CMA panel deputy chairman, said: "With two of the operators on the Dover-Calais route making substantial losses, it remains our view that the current level of competition on the route is unsustainable and likely to lead to the exit of a competitor.
"That will leave Eurotunnel, which is funding MyFerryLink’s current losses, as one of only two ferry operators in addition to owning the competing rail link.
"Eurotunnel’s purchase of the ferries means it now has over half the market and its share will rise further if competitors exit.
"It would be much better for passengers and freight customers to have three competing cross-channel operators – with Eurotunnel running the rail link and two independent operators on the ferry route.
"We will stop MyFerryLink running services out of Dover while it is owned by Eurotunnel but we would not prevent Eurotunnel from finding a suitable purchaser that was completely independent of Eurotunnel to operate the ferry service."
He said officials were aware of the potential effect of the decision on the jobs of the MyFerryLink workers, but said there would also be job losses for a rival if MyFerryLink remains on the route
Rival operator DFDS said the decision was good news for DFDS Seaways and its 1,300 employees.
"We can now start to finalise our plans for the future," said senior VP Carsten Jensen.
P&O Ferries said MyFerryLink has gained a large share of the market by selling its services at below cost, which is unsustainable.
But it added: "As an Anglo-French employer, we are acutely aware of the sensitivities surrounding this announcement in northern France. We employ hundreds of French staff and would be receptive to working with interested parties to see what we can do to help preserve French jobs."
