Under the co-operation agreement, a joint task force comprised of senior staff from both exchanges will shortly begin a series of meetings to consider areas in which the two parties will work together.

Areas for immediate consideration include the operation and regulation of markets for growth companies, the creation and promotion of new jointly traded products and co-operative schemes to provide members with access to each other's markets, with the eventual aim of providing a round-the-clock trading environment.

In addition, the exchanges says they will share information on technology, as they both deliver next generation systems to their markets.

Commenting on the alliance Chris Gibson-Smith, chairman of the LSE: "The Tokyo Stock Exchange is an immensely important global market, and we see our co-operation agreement with it as an exciting opportunity to broaden the scope of the services that we are able to offer issuers, investors and member firms."

Taizo Nishimuro, president and CEO of TSE, says: "Taking into consideration the environment surrounding market operators, it is critical for us to explore the possibility for satisfying exchange's various stakeholders."

This is the first time that the London and Tokyo exchanges have agreed to work together and the alliance comes after the LSE successfully fought off a £2.7bn takeover bid from Nasdaq.

Earlier this month the TSE agreed to form an alliance with the New York Stock Exchange that will see the two bourses work together to develop and explore new opportunities in trading technology, investment products, marketing and regulation.

The TSE has also been forming alliances with other markets and signed agreements last year with a number of exchanges in Asia including the Singapore Exchange, the Taiwan Stock Exchange, the Shenzhen Stock Exchange and the Korea Exchange.

Germany's Deutsche Börse - a former LSE suitor - has also seeking alliances in the market and like the London exchange is looking east.

The German Börse has recently signed a cooperation agreement with the Korea Exchange and last week acquired a five per cent stake in the Bombay Stock Exchange for $43 million. Reto Francioni, CEO, Deutsche Börse, told reporters that the Bombay acquisition was a "strategic, not financial, investment".

Francioni said that the Börse, which failed last year to merge with European rival Euronext, may still take part in the consolidation that is sweeping the industry.

Francioni also dismissed speculation that the Börse's management was planning on restructuring the operations by creating a holding company and spinning off and separating units - such as the settlement house Clearstream.

This prompted calls from Deutsche Börse's largest shareholder - hedge fund Atticus Capital - for the exchange to restructure operations.

In a letter to Kurt Viermetz, chairman of the supervisory board of Deutsche Börse, Atticus Capital says the exchange is "dramatically undervalued" and has called for the separation of Clearstream and a Dutch auction for at least 20% of its shares.

Earlier this week the Frankfurt-based exchange said its net income for full year 2006 reached EUR668.7 million, compared to EUR427.4 million in 2005. Sales revenue climbed by 14% to EUR1,854.2 million. The exchange also disclosed plans to return EUR1.9 billion in capital to shareholders.