The University of North London and London Guildhall University have finalised plans for a merger.
They will merge with effect from August 1 2002, forming the city's largest university in student numbers. They have been considering the move since May.
Between them they have 24,800 full-time equivalent students. Their combined annual revenue would be more than £110 million.
In a joint statement, Brian Roper, vice-chancellor of UNL, and Roderick Floud, provost of LGU, said: "We can take a national lead in turning the government's widening-participation agenda into reality."
Sir Howard Newby, chief executive of the Higher Education Funding Council for England, said: "Hefce is pleased to support in principle this innovative strategic merger. The decision to merge is a bold one that we believe will have significant benefits for students and the region."
The final decision was made on Tuesday when the governors of LGU approved the business plan. Governors at UNL had given their blessing the previous week.
Its objectives include capitalising on opportunities for applied and applicable research, increasing student numbers and consolidating its financial base.
But the move was met with opposition at LGU where several hundred gathered to lobby the governors' session. Lecturers and administrative staff said that they feared job losses. Students were concerned that standards might fall and sites might be sold.
Greg Barnett, a local representative of lecturers' union Natfhe, compared the new university to the Millennium Dome. "This is going ahead on the assumption that the government's policy on widening participation will save the new university. But if students don't turn up we will be left high and dry," he said.
A name for the institution has yet to be chosen.