WASHINGTON (Reuters) - The U.S. Justice Department on Monday gave antitrust approval to Charter Communications Inc's CHTR.O proposed purchase of Time Warner Cable Inc TWC.N and Bright House networks, which would create the second-largest U.S. broadband provider and third-largest video provider.

A Time Warner Cable sign and logo are seen on a Time Warner Cable store in the Manhattan borough of New York City, May 26, 2015. REUTERS/Mike Segar -

The Justice Department's approval carried conditions designed to protect competition, coming at a time when the pay television industry faces stagnation due to new competition from over-the-web rivals like Netflix NFLX.O and Hulu.

The Federal Communications Commission must also approve the deal, and the agency’s chairman on Monday said he, too, was prepared to put conditions on the merger aimed at promoting broadband competition.

The Justice Department said that as part of its approval, Charter agreed to refrain from telling its content providers that they cannot also sell shows online.

“Continued growth of OVDs (online video) promises to deliver more competitive choices and a greater ability for consumers to customize their consumption of video content to their individual viewing preferences and budgets,” the Justice Department said in a court filing. “The emergence of OVDs threatens to upend the competitive landscape.”

At the FCC, Chairman Tom Wheeler said he circulated an order seeking approval of the merger with conditions that “will directly benefit consumers by bringing and protecting competition to the video marketplace and increasing broadband deployment.”

Wheeler said if approved the conditions would require Charter to extend high speed internet access to another two million customers within five years – with one million served by a broadband competitor.

Additionally, Charter would not be permitted to charge usage-based prices or impose data caps and would be prohibited from charging interconnection fees, including to online video providers, which deliver large volumes of internet traffic to broadband customers. He said the agreement would “demonstrate the viability of one broadband provider overbuilding another.”

It was not immediately clear when the FCC would decide.

Both sets of conditions would be in place for seven years; Charter had sought three.

Charter has valued the deal at $56.7 billion for Time Warner Cable, excluding debt, and $10.4 billion for Bright House Networks.

Charter said it was pleased with both the Justice Department and FCC’s actions. “We are confident New Charter will be a leading competitor in the broadband and video markets,” the company said in a statement.

Shareholders of both companies have approved the deal. The only other outstanding approval needed is from one last state, California. An administrative judge has recommended the state’s public utilities commission approve the deal, which could come as early as May 12

Charter, backed by billionaire John Malone's Liberty Media Corp LMCA.O, had pursued TWC as far back as 2013. The two companies had acrimonious exchanges in 2013 and early 2014 that ended with Time Warner Cable rejecting unsolicited approaches by Charter and instead finding a white knight in Comcast Corp CMCSA.O, the No. 1 U.S. cable services provider.

Comcast’s $45 billion bid, however, fell through a year ago, after U.S. regulators raised concerns.

Following that, Charter and TWC resumed deal talks. In May last year, Charter said it would buy TWC in a cash-and-stock deal in order to compete with Comcast.

Charter gained about 5 percent to close at $207.01 On Monday and Time Warner rose 4.1 percent to close at $209.63.