The source said the government believes the merger would have possible detrimental effects on the Spanish financial system and would affect jobs and customers.
BBVA presented a 12.23 billion euro ($13.11 billion) takeover bid for Sabadell directly to shareholders on Thursday, even though Sabadell's board of directors already rejected a proposal on the same terms this week.
(Reporting by Emma Pinedo; edited by Inti Landauro; edited in Spanish by Javi West Larrañaga)