The merger decision comes after the two companies formed a strategic alliance in July last year, when they also agreed to consider merging their operations under a single holding company.
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JVC, an affiliate of Panasonic maker Matsushita Electric Industrial produced Japan's first television set and was the pioneer of VHS video recorders, but it has been struggling recently on a lack of popular products in the digital consumer electronics market where price competition is getting fiercer.
JVC said last month it planned to stop domestic production of flat-panel televisions.
'In the current consumer electronics industry, global competition for market share and prices has become more fierce,' the firms said in a statement.
'JVC and Kenwood concluded that a realignment of Japanese audiovisual makers will be inevitable to survive in an extremely competitive market.'
JVC President Kunihiko Sato will become president of the new company, which will be called JVC Kenwood Holdings.
Under the proposed terms of the merger, investors will receive two shares in the new holding company for each JVC share held, and one share for each Kenwood share held.
