The State Council has agreed to form a major rare earth production corporation led by Ganzhou Rare Earth Group Co Ltd, the mayor of Ganzhou, Jiangxi province, said on Tuesday.

The new rare earth group will become the largest of its kind in South China, and will boost the industry's sustainable development.

The new entity will be based in Ganzhou, where 36 percent of China's middle and heavy rare earth reserves are located.

After 40 years' development of rare earth exploration and processing, Ganzhou's rare earth industry accounts for one-third of China's total rare earth sales revenue, according to data from the industrial association.

The new group will mine, smelt, process and trade rare earths. Some local companies, such as Longnan Wanbao Rare Earth, plan to merge into Ganzhou Rare Earth Group Co Ltd.

China's top rare earth producer, the Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co, is also considering merger with other companies to form a rare earth mega-company.