A powerful new competition watchdog has come fully into force as part of a shake-up to make markets work better for consumers, business and the wider economy.

The Competition and Markets Authority (CMA) is expected to have payday lenders and energy firms in its sights after taking over the responsibilities of the Competition Commission and some functions of the Office of Fair Trading (OFT).

The body will be responsible for making sure markets are "open, transparent and dynamic".

The new "strong and streamlined" authority will conduct market studies where there may be competition and consumer problems, investigate mergers which could restrict competition and probe possible breaches of UK or EU prohibitions against abuses of dominant positions.

The body has taken over the caseload of the Competition Commission, including its probe into the payday lending industry which is due to report back later this year.

The OFT referred payday lenders to the Commission after an investigation last year found "deep-rooted" problems, including irresponsible lending taking place to people who could not afford to pay back their loans on time, meaning they were forced to roll the debt over and they then became trapped with their payday lender.

Last week, regulators said they planned to refer the energy sector for a full-scale competition investigation.

Ofgem said a full-scale probe by the CMA would "clear the air" amid concerns that switching between suppliers had fallen and that those who never switched, many of them vulnerable customers, were being ripped off.

The CMA investigation will be the first ever full-scale competition probe into the energy sector and will subject to unprecedented scrutiny. It is likely to be launched within weeks following a consultation on Ofgem's findings.

The body has extensive powers to shake up the sector by removing "long-term structural barriers to competition" which could include separating firms' generation arms from retail divisions selling gas and electricity to homes and businesses.

Another area of interest the CMA has already highlighted as a "major priority" to make sure competition is working effectively is the rapidly-expanding online market.

The CMA was established under the Enterprise and Regulatory Reform Act 2013. It came into being last October 2013, before taking on its full powers today.

Business Secretary Vince Cable said: "Today is a significant day for consumers as the Competition and Markets Authority begins work.

"It is a very real demonstration of the major reforms this Government has delivered to strengthen and streamline the competition regime, which has consumers at its heart, and which will support economic growth. I look forward to it making an impact."

The CMA plans to work closely with other consumer protection bodies such as local authority Trading Standards Services and the Citizens Advice.

As part of this, it has kicked off a project to understand more about how over-indebtedness affects what goods and services people use and what being burdened with too much debt does to their choices.

The CMA also plans to establish a network of experts who can help it understand closely consumers' "real life" experiences in markets, so it can spot trends early and try to head off problems.

In a speech at the European Consumer Summit in Brussels, David Currie, chairman of the CMA, said: "The single most important measure of how the CMA does its job will be the results that it achieves for consumers, and that will remain the key focus for us in everything that we do."

Alex Chisholm, CMA chief executive, said: "We want to help achieve a really dynamic economy in which firms are competing hard to satisfy customers with innovative and value-for-money products and services.

"We will use our powers, resources and ingenuity to promote competition, empower consumers and strike down illegal behaviour."