The U.S. Department of Justice filed a lawsuit Wednesday to block Halliburton Co.’s planned acquisition of oil and gas rival Baker Hughes Inc.

The suit, filed in a Delaware federal court, says a combination of the world’s second- and third-largest oil and gas companies would lead to higher prices and less competition in the industry and reduce innovation.

"The proposed deal between Halliburton and Baker Hughes would eliminate vital competition, skew energy markets and harm American consumers," Attorney General Loretta Lynch said in a statement.

Halliburton and Baker Hughes issued a joint statement saying they intend to "vigorously contest" the Justice Department's efforts to block the pending merger.

The companies also said that early in the process, they tried to allay concerns that the deal would dampen competition by offering to sell off or divest billions of dollars in assets to other parties. They said such a move would "facilitate the entry of new competition in markets in which products and services are being divested."

The Justice Department said it believes the two companies still would retain their most valuable assets.

The planned merger, valued at nearly $35 billion when it was announced in November 2014, would create a bigger rival to industry leader Schlumberger Ltd.

Since the plan was announced, the price of crude oil on global markets has dropped, reducing demand for services such as extracting and pumping gas and oil.

Justice Department Sues to Block Oil Giants? Merger