The University of Central England has agreed to dissolve and merge with Aston University to create an institution that would rival Birmingham University in size.
UCE governors gave their approval on Tuesday to the plans, which are subject to Aston's formal agreement.
A confidential paper backed by the governors and passed to Aston for consideration yesterday proposes to transfer UCE to the chartered University of Aston.
This would create a "major university" with more than 30,000 students and a turnover approaching £200 million.
The new institution would be called Aston University, and all UCE staff would be transferred with their employment conditions intact.
UCE vice-chancellor Peter Knight, who would not join the new institution's management team, said he estimated that the earliest date that the merger could be completed would be August 2006.
Michael Wright, vice-chancellor of Aston, said he was keeping an "open mind" about the proposals. But he stressed that it was so far purely a UCE initiative that would have to be considered by Aston's council when it meets next Wednesday.
"We have to consider the fact that it would take Aston in a new direction and look at what impact it would have in the wider context of higher education in Birmingham," he said.
The UCE paper argues that the proposed merger makes sense because both institutions are heavily involved in developments in Birmingham's Eastside learning and leisure quarter, adjacent to the Aston campus. Students studying at Aston and UCE's Eastside sites will in effect be sharing one campus.
It says: "There must be major opportunities for collaboration between UCE and Aston for the joint development of this substantial site. It would be pointless if students facilities were developed on that campus simply on the basis of the needs of students from either UCE or Aston."
Another point in favour of merger is that there is almost no duplication of courses between the two institutions, but there is significant potential for them to complement each other. Both are also committed to widening participation and working closely with industry.
Dr Knight said: "The more we started to think about it, the more there seemed to be a logic in at least starting the discussions on the possibility of a merger."
He insisted that there was no financial incentive behind the plans. And he said UCE would post its biggest-ever surplus of £3.7 million this year, and Aston's financial standing was equally healthy.
He saw "no reason" why a merger should lead to redundancies or cutting courses "because the intention is to create a major institution that is financially prosperous and with the opportunity to recruit and develop".
Sue Davis, regional official for lecturers' union Natfhe, said: "There are a lot of issues around how our members will be affected. We will want to be consulted at the earliest opportunity."
Dr Knight added that he thought the plans were more likely to succeed than the failed merger proposals between Aston and Birmingham because there were no constitutional obstacles in the way.
"The pragmatic approach is to dissolve the corporate institution and transfer it to the chartered one. The secretary of state has the power to approve that, while dissolving a charter is a nightmare," he said.
But he admitted that bringing off the merger would not be easy. He said:
"The biggest downside is that it will create a period of uncertainty and during that time there is a risk that we will both lose opportunities.
"I can think of 100 possible difficulties, but if there is a will from both institutions, we can create a mechanism to resolve any problems."