Telecoms giant Vodafone has agreed a merger of its Australian arm with local listed firm TPG Telecom, which will forge a new provider worth AU$15bn (£8.4bn).

Vodafone Group and its subsidiary Hutchinson Telecommunications Australia will each own a 25.05 per cent stake in the new firm, while TPG shareholders will take over the remaining 49.9 per cent.

As Australia's third and fourth largest telecoms firms, the tie-up will provide a significant challenge under the TPG brand to take on Optus and Telstra at the top of the chain.

TPG's share price in Australia rose 15 per cent to an almost two-year high as news broke overnight, while shares in Hutchinson skyrocketed 48 per cent to their highest price in 11 years.

Read more: Vodafone in 'exploratory talks' to merge Australian arm with rival TPG

The new business will take on TPG's existing fibre network and Vodafone's mobile system, with the two owners suggesting they will prepare a joint bid to buy 5G spectrum in late November.

The deal remains subject to approval from TPG shareholders and regulators in the region, however it has received unanimous backing from TPG's board so far. The merger is expected to be completed next year.

Vodafone's chief executive Nick Read said the transaction will accelerate Vodafone's comms strategy in Australia, putting it in "a much better place" to invest further in next generation mobile and fixed line services.