Swansea Metropolitan University and the University of Wales Trinity Saint David are set to merge.
The governing bodies have agreed in principle to form a single university.
They say it will improve the choice of courses available to students, free up more resources for teaching and meet the needs of employers.
Earlier this month Education Minister Leighton Andrews told universities in Wales there needed to be fewer of them and they must "adapt or die".
The University of Wales Trinity Saint David was formed by the merger of Trinity University College, Carmarthen, and the University of Wales Lampeter, Ceredigion.
'Excellent track record'
Further talks on the exact structure and constitution of the new institution and the involvement of the local further education colleges will now take place.
Dr Medwin Hughes, vice-chancellor of the Trinity Saint David said: "Both governing bodies have this week taken historic decisions which will have far reaching effects on the higher education sector in Wales.
"This is an important development for the region in that it will have strong university grouping."
Professor David Warner, vice-chancellor of Swansea Metropolitan said: "This exciting new development builds on the excellent track record both universities have of working together.
"It will be based on a partnership of equals and will free-up greater resources for front-line delivery."