The carrier was formed after the collapse of Swissair

Under the deal, Lufthansa will pay up to 310m euros ($408m; �215m) for the loss-making carrier.

The bid had been awaiting the go ahead from the Swiss government - the airline's largest shareholder.

About 2.6bn euros was invested in the carrier after its 2002 formation from the shell of the collapsed Swissair.

But the new company has recorded total losses of about 1.3bn euros, struggling through the Sars crisis, high oil prices and competition from low-cost carriers.

Lufthansa is now expected to make a buy out offer to smaller shareholders.

A formal agreement will be signed later on Tuesday in Zurich, both airlines said.

Revival attempts

Swiss was set up in March 2002 after the nation's cherished national carrier filed for bankruptcy in the wake of the 11 September attacks in the US and the failure of an expansion plan.

Both its fleet and staff numbers have been cut several times since.

The government, Swiss banks and the Zurich authority held about 50% of its shares. Corporate stockholders include UBS, Credit Suisse and Novartis.

Final approval for the deal will be made by EU competition authorities.