Under the deal, Google will acquire a team of people who develop Pixel smartphones for the US firm and receive a non-exclusive license for the Taiwanese firm's intellectual property.
The transaction, which is subject to regulatory approvals, is expected to close by early 2018.
The deal will not involve the purchase of a direct stake and HTC
will continue to run its remaining smartphone
business, a source said, declining to be named as the information was not publicly announced till then.
said in a filing to the stock exchange that it would hold a news
conference at 10:00 am Taipei time (0200 GMT) on the signing of an "important cooperation agreement."
shares were on a trading halt on Thursday. Google declined to comment.
is a long-time partner of Google and manufactures the US firm's latest Pixel smartphone.
Google's strategy of licensing Android for free and profiting from embedded services such as search and maps has made Android the dominant mobile operating system with some 89 per cent of the global market, according to IDC.
But it has long been frustrated by the emergence of many variations of Android and the inconsistent experience that has produced. Pushing its own hardware will likely complicate its relationship with Android licensees, analysts said.
is past its prime in terms of being a leading hardware design house, mainly because of how much it has had to scale back over the years as because of declining revenues," said Ryan Reith, an analyst at research IDC.
"Unless Google really wants to control hardware for its other businesses like Home and Chromebooks in addition to smartphones, then I don't see this as being a bet that pays off," Reith added.
HTC, which once sold one in 10 smartphones globally, has seen its market share dwindle sharply in the face of heated competition from Apple Inc, Samsung
Electronics Co and Chinese rivals.
Its share price has also suffered steep declines over the past couple of years. The stock has fallen 12 per cent so far this year and the company is worth around $1.9 billion.
HTC's worldwide smartphone
market share declined to 0.9 per cent last year from a peak of 8.8 per cent in 2011, according to IDC. Google's Pixel also had less than 1 per cent market share since it was launched a year ago, with an estimated 2.8 million shipments, IDC estimates.