The Competition and Markets Authority (CMA) said JD is “by far and away” the closest alternative for shoppers at Footasylum and ordered the group to sell it.
However, the ruling was criticised by JD Sports' executive chairman Peter Cowgill, who branded it “inexplicable”, while some in the City raised concerns.
The CMA’s decision follows a second investigation by the watchdog after JD Sports appealed against a previous ruling, saying investigators failed to take into account online sales through Nike and Adidas in the UK.
But the CMA said it expects JD Sports' £90 million takeover of Footasylum would continue reducing competition even after taking into account the growth in online shopping.
According to the agency, 50 per cent of online shoppers surveyed said they would go to JD Sports if they were unable to shop at Footasylum for clothing. A further 43 per cent said they would make the switch if they could no longer buy footwear from Footasylum.
The CMA argued that these figures were substantially higher than for any other retailer and that another survey of in-store shoppers showed similar results.
Investigators added that they believed Footasylum would remain in robust health even if no longer owned by JD Sports, which bought the brand in 2019, despite the pandemic and increased competition from other brands.
They pointed out that total revenues for last year were £232m with underlying pre-tax profits of £29.3m - up from £25.5m a year earlier.
Kip Meek, chair of the CMA inquiry group, said: “The UK boasts a thriving sports fashion market and today's decision reflects our commitment to keeping it that way.
“We strongly believe shoppers could suffer if Footasylum stopped having to compete with JD Sports. It is likely they would pay more for less choice, worse service and lower quality.
“The pandemic may have altered the way we shop but innovative businesses, driven by healthy competition, will rise to the challenge and successfully cater to changing tastes and habits.”
Cowgill responded, saying: “Overall, the CMA's decision today continues to be inexplicable to anyone who understands what difference the pandemic has made to UK retail and how competition and the supply chain in our markets actually work.
“It is deeply troubling at a time when the UK high street has been seriously damaged already and is vulnerable to further closures.”
Michael Hewson, chief market analyst at CMC Markets UK, noted: “JD Sports share price has shrugged off losing its appeal to hold onto its Footasylum business. This is despite the CMA agreeing that its closest competitors were now the direct-to-consumer operations of international brands, rather than its Footasylum business which now has a market share of less than 5 per cent.
“While it finally draws a line under this long running saga, the fact it has taken this long to arrive at this decision, and furthermore be completely at odds to all the logic available, rather begs the question as to what useful purpose the Competition and Markets Authority actually serves.”