Shares in the takeover target surged more than 12 percent on the news that the Australian Competition and Consumer Commission (ACCC) had decided the deal was unlikely to lessen competition in any relevant market.
BHP Billiton's hostile offer is still being examined by European regulators, but has received a positive vetting in the US.
"While significant concerns were raised by interested parties in Australia and overseas, the ACCC found that the proposed acquisition would not be likely to substantially lessen competition in any relevant market," the commission said in a statement.
Steel makers, particularly in China, have urged regulators to block the bid for fear that an iron ore cartel would be formed.
BHP Billiton, the biggest mining firm, recently increased its all-scrip hostile bid to 3.4 of its shares for every Rio Tinto share. - Sapa-DPA