Officials in the US Department of Justice antitrust division have made a recommendation to the department to block the proposed acquisition of PeopleSoft by Oracle.
The staff recommendation has been submitted to the office of the assistant attorney general, and the DoJ will make a final decision by 2 March.
Oracle said the recommendation from officials did not represent a final decision.
"This process is simply not complete," said James Rill, of Oracle's counsel.
"I have seen many instances in which the assistant attorney general's decision differed from that recommended by the investigating staff. In my experience, the assistant attorney general will take ample time to review the facts of this situation with an open mind and meet with Oracle before coming to a decision on the matter."
The announcement comes a few days after Oracle upped the stakes in the eight-month old takeover battle by increasing the offer to $9.4bn.
Oracle originally offered to buy PeopleSoft - a competing maker of enterprise software - in June 2003, when Oracle offered $5.1bn, a figure that rose following PeopleSoft's acquisition of JD Edwards and also as Oracle has improved its offer in an attempt to sway PeopleSoft shareholders.
Oracle also claimed that PeopleSoft had initiated the idea of the two companies working together.
"The initial proposal to merge PeopleSoft's applications business with Oracle's applications business came from PeopleSoft chief executive officer Craig Conway, who proposed that he was the best person to run the combined companies' applications business and never mentioned any antitrust concerns," said Oracle spokesman Jim Finn.
Oracle has been trying to get more than half of PeopleSoft's 361 million shares tendered, but just before the latest price offer in early February had only secured 10.6 million shares.
David Legard writes for IDG News Service