In one of the biggest deals in the fast-growing mobile handset space, Internet giant Google will buy cellphone-maker Motorola Mobility for $12.5 billion.

The all-cash deal will boost Google's competitive edge in the mobile computing arena as well as give it access to Motorola's range of Android operating system-based offerings.

Google will acquire India-origin Sanjay Jha-led Motorola Mobility for $40 per share in cash, or a total of about $12.5 billion, the two firms said in a joint statement on Monday.

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Both companies have entered into a definitive agreement for the transaction, which has been unanimously approved by their respective boards of directors.

The offer represents a 63 per cent premium to Motorola Mobility's closing price on August 12.

Google and Motorola Mobility have a good presence in India.

"The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing.

"Motorola Mobility will remain a licencee of Android and Android will remain open. Google will run Motorola Mobility as a separate business," the statement said.

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Subject to various regulatory approvals, the transaction is expected to close by the end of this year or early 2012.

"This transaction offers significant value for Motorola Mobility's stockholders and provides compelling new opportunities for our employees, customers and partners around the world," Motorola Mobility CEO Sanjay Jha said.

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Google CEO Larry Page noted that both entities would create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers.

"We have shared a productive partnership with Google to advance the Android platform and now, through this combination, we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses," Jha noted.

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Once a leading player, Motorola's share in the handset market has taken a beating in recent times, especially with stiff competition from players such as Apple and HTC.

Google senior vice-president (mobile) Andy Rubin said both companies would work to develop and distribute innovative Android-powered devices.

Motorola Mobility's offerings include smartphones, tablets and wireless accessories, among others.