International Power shareholders, who must still approve the deal, will retain 30 per cent ownership of the company.
The transaction has been recommended unanimously by the company's board.
International Power, which had revenues of around $5.5bn in 2009, runs 45 power plants worldwide.
The acquisition gives the newly formed company "strong market positions in Latin
America, North America, UK-Europe, the Middle East, Asia, and Australia," Gerard Mestrallet, GDF Suez's chief executive, said in a statement.
"International Power will be particularly well-positioned to capture the growth opportunities in emerging markets, where energy needs will be strong in the coming years," he said.
GDF Suez posted revenues of nearly $105bn in 2009.
The French government owns a 36 per cent stake in GDF Suez, which itself was formed through a merger in 2008 of the French-Belgian utility Suez with France's own state-controlled Gaz de France.
The deal was viewed as a defensive measure to prevent a foreign takeover of Suez, according to the AP, raising concerns about protectionism.
GDF Suez and International Power both timed the merger announcement to coincide with the announcement of the year's first-half profits.
GDF Suez posted a $4.6bn rise in net profits, while International Power said its net profit fell 49 per cent to $317m.