PARIS— Nokia Corp. is close to buying French rival Alcatel-Lucent in a deal aimed at creating a European telecommunications-equipment behemoth better equipped to fend off rising Chinese rivals.

The two companies said Tuesday that they are in advanced talks over a “full combination” of their businesses in which Nokia would offer a share exchange for control of Alcatel-Lucent. The deal—while not yet sealed—is expected to be announced as early as this week, according to people familiar with the matter.

The Finnish-French tie-up would create a firm with more than 100,000 employees and nearly €26 billion ($27.7 billion) in revenue, rivaling Sweden’s Ericsson, the market leader. The deal would also arm the two companies with more research firepower and a broader technological arsenal in their fight against Chinese players like ZTE Corp. and particularly Huawei Technologies Co., the No. 2 company whose fast expansion has rattled politicians in the U.S. and Europe.

“It’s a big champion that could compete with Huawei and Chinese champions,” said French Economy Minister Emmanuel Macron after a meeting with the chief executives of both companies.

Revolutions in communications technology are disrupting a telecom-equipment business that has already suffered the whiplash of the Internet and brutal price wars when Huawei and ZTE burst onto the international scene with low-cost cellular antennae more than a decade ago.