A new grocery market ombudsman will be set up to protect small suppliers and retailers from the power of supermarkets, the government has said.

The decision follows a recommendation made by the Competition Commission in its 2008 market inquiry in which it called for a body to enforce the new Groceries Supply Code of Practice (GSCOP). Earlier this month, the Conservative party announced its support for the new role.

Consumer minister Kevin Brennan said: "Free and fair competition is the key to a healthy market and it is right that there should be an enforcement body to make sure consumers are getting the best value for money."

ACS chief executive James Lowman said the decision was a victory for common sense. "We have made it clear that the creation of a regulator is the proportionate response to protect consumer interests and will not impede the ability for retailers to compete," he said.

"We have also urged the Minister to stick closely to the parameters of the scheme developed by the Competition Commission, to ensure that the regulator is efficient, independent and proactive."

However, the Federation of Small Businesses warned that the ombudsman's effectiveness would depend on the willingness of suppliers and small retailers to speak out. "While a dedicated watchdog for these businesses is welcome, it does not go far enough to hold large retailers to account or to address the need to reinvigorate small shops on our high streets and the communities they serve," said chief executive Phil Orford.

GSCOP is to be introduced on February 4, after which the Department for Business, Innovation and Skills will start a consultation process to establish the powers and structure of the new ombudsman role.