The commission's final report concluded that Kangaroo "has to be stopped" because even the constraints it had considered, such as controlling the way Kangaroo shareholders offer content to other providers, would not have overcome the risk of the BBC's commercial arm, ITV and Channel 4 abusing the position Kangaroo would have given them.
Peter Freeman, chairman of the commission and of the Kangaroo inquiry group, said: "This case is essentially about the control of UK-originated TV content.
"BBC Worldwide, ITV and Channel 4 together control the vast majority of this material, which puts them in a very strong position as wholesalers of TV content to restrict competition from other current and future providers of video on demand services to UK viewers."
In the commission's opinion viewers would be better served if the trio have to compete with each other in the video on demand market.
Kangaroo's shareholders have reacted with disappointment, describing the decision as "a disproportionate remedy and a missed opportunity in the further development of British broadcasting".
Michael Grade, chairman and chief executive of ITV, was surprised by the decision, but said that ITV had its own successful online offering to fall back on.
Grade said: "We are surprised by this decision because we believed that the Kangaroo joint venture, competing in a crowded online world against dominant global brands, was an attractive UK consumer proposition, free at the point of use.
"In the two years since the idea for Kangaroo was born, the success of ITV.com has proved that our UK content is attractive enough to stand on its own and we remain focussed on our online growth.
"We will provide a further update on our online plans with our full year results on March 4".
Kangaroo has been an expensive exercise for the UK's leading broadcasters. A study by Enders Analysis estimated that BBC Worldwide, ITV and Channel 4 have already spent £25m on staff and development costs.
The Competition Commission's rejection also has repercussions for ad agency Fallon, which was awarded the £4m task to launch Kangaroo last month after pitching against six other agencies.