Nokia said that it has decided to buy its Franco-American rival in order to create a telecoms and Internet technology behemoth.
"Nokia and Alcatel-Lucent confirm that they are in advanced discussions with respect to a potential full merger, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent," the company said in a statement.
"There can be no certainty at this stage that these discussions will result in any agreement or transaction," it added. Nokia, however, did not disclose the deal amount.
Nokia was once the biggest mobile phone maker but it lost its huge market to South Korea's Samsung and other companies.
In 2014, Nokia sold its mobile phone and tablet division to US software giant Microsoft, and the company now develops mobile and Internet network infrastructures for operators.
Nokia is now focusing on mobile technologies such as LTE and 4G, and its mapping and location system subsidiary called HERE.
In December, it was first reported that Nokia was planning to buy Alcatel-Lucent and on Monday France's Les Echos reported that senior executives of both companies had been in negotiations since January.
The purchase is ser to provide a significant boost in market share for Nokia. The Alcatel-Lucent wireless infrastructure unit alone accounted for 36 percent of total sales for the Paris-based company in 2014, according to Bloomberg. It generates 4.7 billion euros ($5 billion) in revenue.
The acquisition is going to prove beneficial for Nokia as it would help the Finnish firm bolster its mobile infrastructure business against Swedish arch-rival Ericsson and China's Huawei.
The Finnish market, however, reacted negatively to the news. In Helsinki, Nokia shares were down 6.76 percent three hours after the announcement.