Presented as a merger of equals, the operation is in effect an Alcatel takeover of Lucent. The French firm will have 60 percent of the capital in the new group which will have its headquarters in France.

But the two companies also said in their statement that they will have the same number of seats on the new company board, and Lucent's chief executive officer Patricia Russo will take up the same post in the new entity.

The move to take Lucent's defence activities out of the merger comes amid rising protectionist sentiment in Congress over US enterprises linked to national security.

"We intend to form a separate, independent US subsidiary holding certain contracts with US government agencies," Russo told a press conference.

"This subsidiary would be separately managed by a board, to be composed of three US citizens who will be acceptable to the US government.

"This is a structure which is routinely used to protect certain government programmes in the course of mergers that involve a non-US parties," she added.

The activities are concentrated at Lucent's Bell Laboratories, the oldest American electronics research centre, which was set up in 1925.

Bell Labs will keep its headquarters in Murray Hill, New Jersey, also the site of the current Lucent head office, said Alcatel chairman and chief executive Serge Tchuruk.

Bell Labs carried out the first long distance transmission of a television programme in 1927 and aims to register at least two copyrights a day from its inventions.

The unit recently won an 11 million dollar contract from the US government to create a broadband communications network for the military.

Setting up the new entity around Bell Labs should mean the Lucent-Alcatel merger will get the green light from the US competition authorities -- and calm any criticism of the deal from Congress.

A law being considered by Congress would ban foreign government-controlled firms from taking stakes in US firms with activities in the US defence sector, unless those interests are put into separate US-controlled entities.

The law follows a major controversy after Dubai Ports World, which is controlled by the United Arab Emirates government, took over a British firm that manages terminal operations at six major US ports.

Alcatel's links with French defence equipment maker Thales could cause problems with the US authorities. Alcatel has a 9.5 percent stake in Thales, and the French state has 31.5 percent.

Thales is a major player in the European defence industry, with interests in systems for combat planes, warships and computer security.

Certain parts of the US media have recently been critical of the French government's opposition to moves to liberalise the European Union economy.

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