Vodafone said it will pay €1bn (£770m) to Liberty Global in order “to equalise ownership in the joint venture”.
The tie-up will achieve cost, capex and revenue synergies with a value of around €3.5bn after integration costs, Vodafone said.
The deal is set to close around the end of the year and is subject to regulatory approval, although it is not expected to encounter any major antitrust hurdles.
Combining Liberty's Ziggo TV, broadband and fixed-line network with Vodafone's mobile business in the Netherlands will create a quad-play operator in the country – widely seen as the way forward for the highly competitive telecoms industry, which is experiencing rapid consolidation all across Europe.
Last year, plans for a much larger merger of the two companies was scrapped after talks regarding its businesses in the UK and other parts of Europe failed to progress.
FTSE 100-quoted Vodafone's shares closed up 0.74 per cent at 211p. Liberty Global gained 4.5 per cent to $32.83 on the Nadaq in the US.
Vodafone's chief executive Vittorio Colao said: “The combination of Vodafone's leading mobile business with Ziggo's successful broadband and TV business creates a strong and competitive integrated communications player, which will invest in digital infrastructure, entertainment services and productivity applications for Dutch consumer, business and public sector customers.”
Mike Fries, chief executive of Liberty Global, said: “This powerful combination of the best fixed and mobile networks in the Netherlands will deliver huge benefits to Dutch consumers and businesses.
“Throughout Europe, Liberty is capitalizing on the rising demand for lightning-fast broadband speeds, the coolest digital TV platforms and apps, and seamless 4G wireless connectivity.”