The accelerated deal also saved the firms up to €1,5 billion in taxes, it was reported on Thursday - after an agreement was struck with tax authorities to call the takeover a restructuring.
This provoked criticism from Rainer Brüderle, head of the Free Democratic Party's parliamentary group. "That might all be legal, but shows how urgently we need a simple and fair tax law," he told the Handelsblatt newspaper.
Normal tax payers are bound to feel conned when huge companies like this save such money with tax tricks, he said. "Many tradesmen can only dream of such understanding from the tax office," he said.
In a statement issued late Wednesday, the two companies - which have been seeking to merge since 2009 - said they had found a way to integrate their two businesses "some two years earlier than would have been economically feasible" under their previous plans.
The news sent VW shares jumping more than four percent in early trade Thursday, where they were the biggest gainers on the blue-chip DAX 30 share index.
Under the deal, which they said would unlock €320 million ($400 million) in net synergies, VW is to pay Porsche's current holding company Porsche SE €4.46 billion plus one VW share for the 50.1 percent it does not already own in the sports car maker.
VW initially acquired 49.9 percent in Porsche in 2009 in the first stage of a complex takeover agreement, the completion of which has since run into a number of legal and tax hurdles.
Prior to VW's takeover of Porsche, the sports car maker had itself tried, but failed, to swallow the much larger VW, running up more than €10 billion of debt in the process.
When VW announced its takeover plans for Porsche in 2009, its initial goal was a merger with Porsche SE, which currently holds a 50.7-percent stake in VW and a 50.1-percent stake in Porsche AG.
But it quickly shelved such ambitions in the face of dozens of lawsuits by hedge-fund investment managers seeking billions of dollars in damages from Porsche related to the failed takeover attempt.
The new merger structure avoids massive tax payments for VW, and means Porsche SE "will contribute its operations as a holding company, including its 50.1-percent Porsche stake, to Volkswagen, which already holds indirectly 49.9 percent of Porsche.
"Once the transaction has closed, Volkswagen will hold 100 percent of the shares of Porsche AG via an intermediate holding company," it explained.
VW's chief executive Martin Winterkorn said the accelerated merger deal would benefit customers, employees and shareholders alike.
"The unique Porsche brand will now become an integral part of the Volkswagen Group. That is good for Volkswagen, good for Porsche and good for Germany as an industrial location. Combining their operating business will make Volkswagen and Porsche even stronger - both financially and strategically - going forward," Winterkorn said.
"We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment."
VW's brands currently include Volkswagen, Audi, Skoda, SEAT, Bentley, Bugatti and Scania and MAN trucks.