The sale of 10,700 kilometres (6,700 miles) of electric lines owned by E.ON in Germany would take effect on January 1, the company said in a statement.
E.ON and TenneT agreed that the value of E.ON subsidiary Transpower Stromübertragungs GmbH, which owns and operates the extra high-voltage transmission network was €885 million. A provisional purchase price as of December 31 was sat at €1.1 billion and "includes cash held by the company."
A final purchase price is to be determined on that date "on the basis of the net financial position known then," E.ON said. It stressed that regional distribution grids "which form by far the largest part of E.ON's network business, are not affected by this sale."
E.ON chief executive Wulf Bernotat said the deal marked an important step towards the integration of Europe's electricity market.
Last week, the German subsidiary of Swedish power group Vatenfall, Vatenfall Europe, said it too would sell its electric network, without providing details.
The moves come following pressure from the European Commission on power companies to break up their dominant market positions in both generating and distribution activities.
But the sales could complicate an eventual creation of a "German network company" that would integrate the grids of all power generators in the country and which the government in Berlin has pushed for.
Press reports said Vatenfall would sell its grid to a consortium that included Goldman Sachs, Deutsche Bank and the insurance group Allianz for around €500 million.
The EU commission is also bring pressure to bear on gas companies in a bid to increase competition in German energy markets that are dominated by four companies, E.ON, RWE, EnBW and Vattenfall.
RWE and EnBW have resisted selling off distribution networks that earn comfortable profits. But E.ON has agreed to sell networks to escape heavy fines by the commission, and plans to offload assets worth a total of €10 billion by 2010 to raise cash.
The German power network will need heavy investments in coming years to integrate wind farms that have mushroomed of the country's northern coasts.
E.ON shares were essentially unchanged in midday Frankfurt trading, while the DAX index of German blue-chips was 0.24 percent higher overall.