The combined company will have almost 400 million customers, accounting for 35% of the market share, the firms said in a statement.

The announcement ends months of speculation over an impending deal.

Analysts say the merger was to fend off competition from a new operator - Reliance Jio.

Owned by the country's richest man, Mukesh Ambani, Jio has forced Vodafone India and Idea Cellular, together with current market leader Bharti Airtel, to cut prices.

Shares in Idea rose almost 4% in Mumbai following the announcement of the deal.

India's leading mobile networks are embroiled in what analysts have described as "a vicious price war", started by the arrival of Jio.

More than 10 telecom operators are battling it out to try to attract India's one billion mobile phone users.

That has forced firms to keep tariffs low, significantly affecting their profitability.