Nokia and Microsoft put forward their final solutions in March, which can reduce the deal's potential threat to market competition, the Chinese Commerce Ministry (MOC) said.
In a statement, the ministry said it had made the decision to ok the deal after analysing the "vertical relationship" between Nokia's smartphone business and Microsoft's patents for smart terminal operating system and mobile smart terminals.
The MOC has also studied the potential impact of the deal on abuse of patents and China's smartphone market, it said.
Shang Ming, head of the MOC's anti-monopoly bureau, said the case was one of the most complicated since China's anti-monopoly law came into effect, as 75 per cent of the world's handsets are made in China, and China accounts for 34 per cent of the global smartphone market.
If Microsoft raised the licensing fees for its patents, China's handset makers would have to exit the market or transfer part or all of the extra costs to smartphone consumers, state-run Xinhua news agency quoted Shang as saying.
If abuse of dominant position or other monopoly acts are found in the future, related regulators would launch investigations in accordance with anti-monopoly laws and regulations, Shang warned.