Updated from 4:19 p.m. EDT

The Justice Department gave its long-awaited approval to the planned merger between XM Satellite Radio ( XMSR) and Sirius ( SIRI - Get Report), potentially paving the way for the deal to be completed before the end of the first quarter.

"After a careful and thorough review of the proposed transaction, the department's antitrust division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers," the Justice Department said in a press release.

Shares of XM surged $1.85, or 15.5%, to close at $13.79, and they were adding another 1.5% in the after-hours session. Sirius jumped 25 cents, or 8.6%, to $3.15 and were up a further 1.6% in late trading.

Shortly after the decision, XM and Sirius said in a joint release that "the U.S. Department of Justice has informed the companies that it has ended its investigation into the pending merger of Sirius and XM without taking action to block the transaction."

However, the Justice Department's ruling is not the end of the yearlong saga. The Federal Communications Commission still needs to weigh in on the deal, although many analysts believe that the FCC has been waiting for the Justice Department to make its ruling first.

Late Thursday, FCC Chairman Kevin Martin said the commission wasn't likely to rule on the merger by the end of the first quarter, although the announcement of the Justice Department's approval may hurry along a decision.

In November, both XM and Sirius each obtained stockholder approval and have anxiously awaited a ruling from both agencies. "Clearly, it's a significant positive and a move in the right direction," says Janco Partners analyst April Horace. "Both companies think they can get an FCC approval in as soon as a week, depending what's on the calendar with the FCC."

Horace points to a Reuters report last week that Martin ordered the commission to put together different drafts of approval documents based on possible outcomes of the merger between the two companies.

Despite the rally, both shares are still trading below what the $4.57 billion deal values them at. Horace says there are a lot of arbitrage players, so the current prices aren't necessarily indicative of where they'll be a week or a month from now. "There's a tremendous short interest, and a tremendous amount hedged against both stocks," she says.