*

UK says deal could increase costs of servers

*

CMA set to refer deal to in-depth inquiry

*

Broadcom has five days to address CMA's concerns

(Adds Broadcom response, further details)

By Paul Sandle and Muvija M

LONDON, March 22 (Reuters) - Britain's competition regulator said U.S. chipmaker Broadcom's acquisition of VMware could make servers more expensive, and it would refer the $61 billion deal to an in-depth inquiry unless its concerns were addressed.

Broadcom agreed to buy the cloud computing and virtualisation company last year to diversify into enterprise software.

Britain's Competition and Markets Authority (CMA) said on Wednesday the deal could dampen innovation and drive up the cost of computer parts and software for servers.

"Servers are a vital building block, functioning largely thanks to hardware products made by firms like Broadcom, working in unison with virtualisation software from firms like VMware," said CMA Executive Director David Stewart.

"We are concerned this deal could allow Broadcom to cut out competitors from the supply of hardware components to the server market and lead to less innovation at a time when most firms want fast, responsive, and affordable IT systems."

The regulator said Broadcom had five working days to address its concerns, after which it would decide within a further five days whether to refer the deal to an in-depth investigation.

Broadcom said it was working constructively with the CMA and it was confident it would address any concerns.

"We will demonstrate that the transaction enhances competition and benefits businesses and consumers through increased quality, innovation and choice," a spokesperson said in a statement.

"The combination of Broadcom and VMware is about enabling enterprises to accelerate innovation and expand choice by addressing their most complex technology challenges in this multi-cloud era, and we are confident that regulators will see this when they conclude their inquiry."

The European Union is set to issue an antitrust warning about the deal, Reuters reported last month.

The EU competition enforcer, which declined to comment on the report, will make a decision by June 21.

(Reporting by Muvija M and Paul Sandle; editing by William James and Bernadette Baum)