Udo Voigt, the leader of Germany's far-right National Party (NPD) told German newsmagazine Der Spiegel that his group would merge with the German People's Union (DVU) led by Gerhard Frey.
"We have agreed to run on a common platform," Voigt said, adding that he would meet with Frey this week to finalize the agreement and come up with a name for the new coalition.
The two parties managed to win seats in the eastern German states of Brandenburg and Saxony in elections in September, partly because they had agreed not to run against each other: While the DVU campaigned in Brandenburg, the NPD focused on Saxony.
That success convinced party leaders to push for a permanent cooperation, Frey told Leipziger Volkszeitung newspaper in an interview on Saturday.
"We're recommending that DVU and NPD will not compete, but unite forces in state, national and European elections," he said.
NPD leadership to include neo-Nazis
Voigt also confirmed reports that his party was planning to include known neo-Nazis in its leadership.
He said the two men, Thomas Wulff and Thorsten Heise, were expected to help attract young people to the party.
"It's a signal for many young people that they shouldn't just have fun on the streets, but should participate in the political process," Voigt said.