Clarendon and Basford Hall Colleges in Nottingham hope to create a powerful bloc which could capitalise on the major expansion which is expected in FE.
Clarendon principal Patricia Morgan-Webb denied that the proposals were aimed at saving money or removing local competition.
She said the two colleges wanted to create a co-operative "college system" and hoped the merged institution would form partnerships with other colleges.
Staff were told about the talks on Tuesday, after both corporations voted to press ahead.
The proposed merger, which would preserve four sites and the distinctive identity of both colleges, echoes proposed integration at East Birmingham and Handsworth Colleges, as well as failed moves earlier this year to merge Newcastle and Gatehead colleges. Ministers are known to favour reducing the number of colleges to boost regional co-operation.
Influential figures have long argued that mergers will create a new breed of super-college covering further and sub-degree higher education, mirroring the American community college model.
Mrs Morgan-Webb stressed that talks were at an early stage. "Both colleges are in a particularly strong position. We believe there's a need for rationalisation within the city and the establishment of a strong new college will help build a really good system."
She said neither college anticipated redundancies if the merger were to go ahead.
* College mergers were given fresh impetus this week with the publication of a guide by the Further Education Funding Council.
The FEFC detailed the background to the merger of Worcestershire College of Agriculture and Pershore College of Horticulture.
It describes how Worcestershire managers sent a prospectus to neighbouring colleges and sought a partner for a merger. Consultants then helped sift the applications. Similar tactics led to the link between troubled Airedale and Wharfedale College and nearby Park Lane College.