The confirmation ended months of speculation that the two operators were exploring a deal.
The confirmation ended months of speculation that the two operators were exploring a deal to help fend off Reliance Jio whose recent arrival shook up India's ultra-competitive mobile network market.
It also sent Idea shares soaring by a whopping 26 percent on the Bombay Stock Exchange (BSE).
"Vodafone confirms that it is in discussions with the Aditya Birla Group about an all share merger of Vodafone India (excluding Vodafone's 42% stake in Indus Towers) and Idea," Vodafone said in a statement.
"Any merger would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone de-consolidating Vodafone India.
"There is no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction," the statement added.
A merger between Vodafone India and the Mumbai-based Idea Cellular would turn India's multi-billion dollar telecommunications market on its head, according to global brokerage firm CLSA.
The group of analysts has estimated that the pair would command a combined revenue market share of 43 percent, ahead of rival Bharti Airtel, which would hold 33 percent.
Reliance Jio, which began operations with great fanfare last year and is owned by India's richest man Mukesh Ambani would have 13 percent, according to CLSA's research.
The 4G Jio network launched in September with an audacious free service for the rest of 2016, followed by vastly cheaper data plans and free voice calls for life.
It forced rivals to dramatically slash their tariffs and left them scrambling to match the deep pockets of Jio, which is backed by India's hugely wealthy energy-to-chemicals conglomerate Reliance Industries.
In afternoon trade Idea stocks were up 26.86 percent, or 20.90 points at 98.70 rupees on the BSE's Sensex index following the announcement.
Vodafone was trading up three percent at 199.15 pence on the London Stock Exchange in early morning trade.