The final ruling confirmed the commission's provisional finding that Ryanair's shareholding in Aer Lingus had lessened, or would lessen, competition on air routes between Britain and Ireland, flown by some 14 million passengers a year.
Ryanair said it was a baseless claim "manifestly disproven by seven years of evidence".
Aer Lingus welcomed the report, saying it confirmed that Ryanair's shareholding was anti-competitive and against passengers' interests.
The no-frills airline first bought a stake in Aer Lingus in 2006 with a view to a takeover bid. However, the European commission has on three occasions blocked Ryanair from acquiring more shares.
Simon Polito, who chaired the competition commission inquiry, said it had "confirmed our provisional view that Ryanair's minority shareholding has resulted, or may be expected to result, in a substantial lessening of competition between the airlines".
He said the inquiry "recognises that Ryanair and Aer Lingus compete intensely for passengers travelling between Great Britain and Ireland" and that competition between them was "at least as intense now as it was when Ryanair first acquired its stake".
However, he said: "We consider that there is a tension between Ryanair's position as a competitor and its position as Aer Lingus's largest shareholder, and that Ryanair has an incentive to weaken its rival's effectiveness as a competitor.
"Ryanair's minority shareholding affects Aer Lingus's commercial policy and strategy in various ways that could be crucial to Aer Lingus's future as a competitive airline. We were particularly concerned about Ryanair's ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive."
Ryanair's chief executive, Michael O'Leary, denounced the investigation as a "politically biased charade", adding: "This report by the UKCC is bizarre and manifestly wrong but also entirely expected."
He said the commission had ignored the evidence, as well as Ryanair's recent undertakings to address competition concerns – including an offer to sell its shareholding to any airline wishing to launch a full takeover. Polito said remedies proposed by Ryanair could not "cater for all eventualities".
O'Leary said: "This case, involving two Irish airlines where one [Aer Lingus] accounts for less than 1% of the UK's total air traffic and concerns very few UK consumers, is yet another enormous waste of UK taxpayer resources from a body which took no action whatsoever when the two main UK airlines [BA and bmi] merged.
"It would appear to be a case of one rule for the UK airlines but an invented set of rules for two Irish airlines."
However, Colm Barrington, chairman of Aer Lingus, said the report "confirms that the minority shareholding in Aer Lingus held by our closest competitor is anti-competitive and contrary to the interests of the approximately 14 million passengers who fly on routes between Ireland and Britain. The competition commission should be commended on its thorough investigation and we look forward to the implementation of its findings.
"It was unacceptable that our principal competitor was allowed to remain on our share register with a shareholding of 29.82% and interfere with our business despite the European commission blocking both Ryanair's first hostile takeover attempt six years ago and its most recent hostile takeover attempt earlier this year."
Ryanair paid €407m for its stake, which is now worth approximately €250m. Ryanair has already written down the value of its stake, so a forced sale at the end of the legal process would be likely to show up as a profit in its accounts.
Aer Lingus's share price dipped by 6% in early trading after the ruling was announced.
Douglas McNeill, investment director at Charles Stanley, said: "Clearly the commission recognises that competition is currently intense, but it is concerned that a takeover bid, at a time of consolidation in the airline industry, would be discouraged by the existence of that 30% shareholding – despite Ryanair's offers.
"But it does raise the issue of who the UKCC thinks would actually buy Aer Lingus. It's hard to see other buyers with the possible exception of IAG, but that prospect seems remote for now. The share price reaction doesn't suggest investors think another offer is likely in the near future."
Ryanair said its lawyers would lodge an appeal with the competition appeal tribunal in the coming weeks.
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