• The notice was issued by Britain's Digital Secretary Oliver Dowden on Monday.
• It's not clear what the national security grounds are but the government said Dowden "considered advice received from officials across the investment security community."

LONDON — The U.K. government has intervened in Nvidia's proposed $40 billion takeover of chip designer Arm on national security grounds.

Britain's Digital Secretary Oliver Dowden issued a Public Interest Intervention Notice (PIIN) on Monday. It's not clear what the national security grounds are but the Department for Digital, Culture, Media and Sport said Dowden "considered advice received from officials across the investment security community."

Dowden said he has written to the U.K. competition watchdog and asked them to start a "phase one" investigation into the transaction, which was announced in September.

The Competition and Markets Authority has been instructed to compile a report for Dowden on the competition and national security aspects of the deal before July 30. Dowden could then approve the deal, permit it on certain conditions, or ask for a more detailed inquiry.

"Following careful consideration of the proposed takeover of Arm, I have today issued an intervention notice on national security grounds," said Dowden in a statement. "As a next step and to help me gather the relevant information, the U.K.'s independent competition authority will now prepare a report on the implications of the transaction, which will help inform any further decisions."

He added: "We want to support our thriving UK tech industry and welcome foreign investment, but it is appropriate that we properly consider the national security implications of a transaction like this." 

A spokesperson for Nvidia said: "We do not believe that this transaction poses any material national security issues. We will continue to work closely with the British authorities, as we have done since the announcement of this deal."

Arm is being sold by SoftBank, which acquired the firm for £24 billion ($33 billion) in 2016 without any major issues. The new sale, however, has raised concerns that Nvidia could relocate Arm's headquarters to the U.S. and reduce competition in the semiconductor industry.

The ongoing global chip shortage has also highlighted how important semiconductors are in today's world. They're used in everything from smartphones and cars to fighter jets and other weapons systems. As a result, nations are keen to become more self-reliant when it comes to chip production, which is currently dominated by China.

Set up in the 1980s, Arm licenses its chip designs to manufacturers around the world and it's been referred to as the "Switzerland" of the chip industry due to its neutrality. Chipmakers including Qualcomm have expressed concerns that Nvidia may look to close off access to Arm's technology, but Nvidia insists that such a move isn't planned.

Nvidia CEO Jensen Huang has pledged to keep Arm's headquarters in Cambridge and expand the company's footprint in the city.

The deal is also being probed by regulators in the U.S., China and the European Union and some question whether it will be allowed to go through. Five industry sources, including two tech investors, told CNBC in February that they think the deal has a very high chance of being blocked by one or more of the regulators.