TUI's supervisory board has given the green light for the proposed tie-up with Etihad Aviation to create a new European airline.
Negotiations are expected to be "finalised in the next few weeks" according to a company statement.
TUI's supervisory body approved the plan to spin-off its German leisure airline subsidiary TUIfly to a joint venture with Etihad. TUI will hold a stake of 24.8 per cent, with Etihad holding 25 per cent. The remaining 50.2 per cent would be held by the existing private foundation NIKI Privatstiftung.
Etihad is in negotiations with Air Berlin to acquire its "touristic operations", primarily in southern Europe and North Africa.
The new venture will be headquartered in Vienna and plans to serve a broad route network, with its two airlines TUIfly and NIKI (a subsidiary of Air Berlin), a total fleet of around 60 aircraft and seat capacity of 15m seats per year. It will operate from key departure airports across Germany, Austria and Switzerland.
Last month Abu Dhabi's Etihad Airways announced talks with TUI Group about establishing the new European airline focused on tourism.
Read more: Air Berlin in deal talks with TUI and Etihad
It would use 35 Air Berlin jets that the airline said it was putting into a separate "touristic" business.
Etihad agreed to become Air Berlin's largest shareholder in 2011, taking a 29.2 per cent stake, and has provided a series of cash injections to boost the German airline during turbulent times. It recorded a net loss of €271m for the first half of the year.
TUIfly is a wholly-owned enterprise of the TUI Group. It announced a better-than-expected outlook for its full-year earnings in August, despite revenue falling partly due to the impact of terror attacks in Europe.
The planned joint venture is subject to approval by the relevant antitrust and aviation authorities.