MOSCOW — President Vladimir V. Putin on Thursday signed legislation merging Russia’s two top courts in a controversial decision seen by many as meant to consolidate the Kremlin’s power over the country’s judicial system.

The new law is the final step in dismantling the Supreme Arbitration Court, which rules on business disputes, and incorporating it into the Supreme Court, the country’s top criminal and civil judicial body, creating a new “supercourt.” The pending merger has alarmed and surprised businesspeople and legal experts, as the Arbitration Court had been counted as one of the few successful institutions in the often corrupt and ineffective Russian judicial system. Many now fear that the arbitration system will deteriorate.

“It’s a very destructive decision,” said Ekaterina Mishina, a Russian lawyer and a visiting professor at the University of Michigan. “The approach of the Supreme Court will prevail, which is much more conservative, much more Soviet.”

The merger is the initiative of Mr. Putin, who has argued that it will streamline Russia’s judicial system and prevent contradictory rulings by the two courts. But when it was announced in June, the measure provoked a mixture of fury and bafflement among most lawyers and judges, who saw no reason for dissolving an institution that functioned more or less to international standards.