UPDATE 1-UK competition watchdog looking into OVO deal for SSE's retail arm

(Updates throughout with comments, context)

By Susanna Twidale

LONDON, Oct 24 (Reuters) - The UK's Competition and Markets Authority (CMA) said on Thursday it would investigate whether OVO Energy's 500 million pound ($646 million) deal to buy power company SSE's retail arm will lessen competition in the sector.

The deal if approved would create the country's second- largest energy supplier with around 5 million household customers, behind Centrica's British Gas.

The CMA said it was inviting comments on the deal from interested parties until a Nov. 6 deadline.

SSE said it was confident the merger was in the best interests of customers and the company.

"We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders," Alistair Phillips-Davies, SSE chief executive, said via email. "And this is an excellent opportunity to make that happen."

SSE had been looking for a buyer for its retail arm following a failed merger with Innogy, which collapsed after the companies failed to agree on new commercial terms in light of a government cap on energy bills.

Large energy suppliers such as SSE have struggled amid fierce competition from smaller, nimbler rivals who have often been able to offer cheaper prices.

An OVO spokeswoman said the company had no comment on the investigation.

Japan's Mitsubishi Corp took a 20% stake in OVO earlier this year.

($1 = 0.7740 pounds) (Reporting by Susanna Twidale Additional reporting by Uday Sampath in Bengaluru Editing by Shounak Dasgupta and David Holmes)