Vietnam's Ministry of Transport has rejected Vietnam Airlines' request that it stop AirAsia's plans to buy a 30% stake in low-cost start-up VietJet.
The national carrier had said that AirAsia's cost-saving alliance with Australia's Jetstar, which has a Vietnamese associate Jetstar Pacific, would be a "big concern" for the country's airline market.
The ministry, however, says that there is no legal provision for it to stop AirAsia, according to Vietnamese news reports.
It adds that under Vietnamese laws, foreign entities can invest in the country's airlines as long as their stake does not exceed 30% and they comply with the regulations.
AirAsia announced the formation of VietJet AirAsia in February, saying that it would tap the Malaysian carrier's expertise to market low-cost flights in the country and region. It is scheduled to begin services in May, according to the news reports.