The ruling puts an end to the six-year-old deal which gives Metro publisher Associated Newspapers exclusive rights to distribute its free paper on the Tube.
In a statement, the OFT said: "The OFT had concerns that, by excluding rivals' newspapers from stations 24 hours a day, despite the fact that the 'Metro' is only distributed in the morning, the exclusivity granted by these agreements went beyond what could be objectively justified."
The decision opens the way for Express Newspapers boss Richard Desmond, who is believed to have demanded the investigation in 2003, to make a bid to launch a long-awaited afternoon freesheet.
The working title for the paper is understood to be London-i, and it would probably be printed at West Ferry.
A spokesman for Express Newspapers said: "We are delighted with the announcement from the OFT. We look forward to being the successful bidder for the contract and will declare our next step in due course."
News International, which publishes The Sun and The Times, is also understood to be planning a bid for the afternoon distribution contract.
Associated Newspapers managing director Kevin Beatty said that the ruling would make no difference to morning freesheet Metro, although a statement from his office did not mention the possible effects on The Evening Standard.
He said: "We passionately believe that the success of Metro is due to its unrivalled editorial approach, which is so appreciated by its audience and advertisers and not by the way it is distributed. We are confident that Metro will continue to go from strength to strength."
Mayor Ken Livingstone, who recently pre-empted the OFT's decision by inviting bids for the afternoon distribution contract, welcomed the news. "This is great news for Londoners. I have always been confident that the OFT would share our view that the exclusive distribution of the Metro is uncompetitive and I am pleased that the investigation has reached a conclusion," he said.
But he warned: "Of course, the exclusivity for morning distribution has not been lifted and we will reserve our right to press for this to be removed."
Story by Josh Brooks
