The Office of Fair Trading has cleared British Sky Broadcasting of breaching competition law after an investigation lasting almost three years.

The regulator said there were insufficient grounds for a guilty verdict, just 12 months after indicating BSkyB may have acted anti-competitively.

BSkyB had been accused of abusing its position in the pay TV market and over-charging rival operators for its sought-after Sky Sports and Sky Movies channels.

Allegations centred on wholesale prices being set at such a level that firms were unable to make a profit by selling them in their own packages.

OFT director general John Vickers said BSkyB was "on the borderline of anti-competitive behaviour".

But he added: "Overall, there are not sufficient grounds to conclude that BSkyB has broken competition law."

The broadcaster, which set out its defence to the OFT earlier this year, was also cleared of two other allegations of anti-competitive behaviour.

It said: "BSkyB welcomes confirmation that its conduct has not infringed the Competition Act."

The OFT kicked off a review of the pay TV market in March 2000 and received complaints from pay TV suppliers Telewest, NTL and the now defunct ITV Digital.

A full investigation was launched two years ago and the regulator studied BSkyB's conduct from 2000 to the end of last year.

An OFT spokeswoman said the investigation bill was about £500,000.

She added: "We have a duty to investigate breaches of the Competition Act and to investigate them fully."

The group was also cleared of restricting the entry of new content providers into the market by offering discounts on its own packages.

Shares in the broadcaster were up almost five per cent in the City after the announcement, rising 30p to 656.5p, close to its highest levels since the summer.

Analysts said fears over the potential for a sizeable fine from the OFT had held back the share price in recent months.

Media analyst David Ferguson said he was surprised by the verdict, adding: "This is a nice Christmas present for Sky."