Mobile phone giant Vodafone said it is in talks with Indian conglomerate Aditya Birla Group about a merger between Vodafone India and Idea Cellular, creating India's largest telecoms company.

Vodafone confirmed recent media speculation following a tough price war in the Indian market, sending the UK-based group's shares up 3% to 199p in early trading on the London Stock Exchange.

India's three leading mobile operators, Bharti Airtel, Vodafone and Idea, have seen sales slide after the arrival of Jio Infocomm, a new operator owned by the billionaire Mukesh Ambani which has shaken up the market by offering free voice and data to customers.

Bharti and other local rivals, including Vodafone's India unit, have slashed prepaid tariffs and cut data plans to compete against Jio.

Vodafone said any all-share merger "would be effected through the issue of new shares in Idea to Vodafone and would result in Vodafone deconsolidating Vodafone India".

It added there was "no certainty that any transaction will be agreed, nor as to the terms or timing of any transaction".

Vodafone was forced into a $5bn (£4bn) writedown of its India business last year because of competition in the country.