Nationwide, the UK's largest building society, is to merge with rival Portman, with the newly enlarged company formed by the two groups set to become the country's second-biggest mortgage lender.
The merged society, which will assume Nationwide's brand name, will boast assets in excess of £150 billion and have more than 13 million members, the building societies announced in a statement this morning.
The planned merger between Nationwide and Portman, the UK's third-largest building society, will allow their customers to have access to more than 800 branches across the country.
The companies stressed that the enlarged society would continue as a mutual building society "owned by and run for the benefit of its members".
It is expected that the deal, which will need to be approved by the Office of Fair Trading (OFT) and the Financial Services Authority (FSA), will be completed by September 2007.
Nationwide's current group finance director, Graham Beale, who is set to replace Philip Williamson as chief executive of the building society next April, will subsequently become chief executive of the enlarged group.
Nationwide's existing head office in Swindon will become the main base for the new company, while Portman's current head office in Bournemouth will "be a key business centre" within the enlarged society.
Announcing the proposed merger deal, Nationwide's current chief executive Philip Williamson said: "This is great news for members of both societies."
"As a result of the merger, 13 million people will be members of a bigger and even better society, offering market leading products and pricing, underpinned by a strong commitment to mutuality."
Portman chief executive Robert Sharpe said that the merger of "two of the largest and most successful UK building societies" would "create an organisation of formidable strength and size".
"If building societies are to continue to compete successfully with the retail banks, they need to enjoy comparable economies of scale," he stressed.
Mr Sharpe added that the planned merger represented a "great deal" for Portman members, who he said would receive a "significant merger bonus" and access to a greater range of products and services following the creation of the new company.