The companies had discussed ways to collaborate on products and new technology, but Fiat Chrysler said more could be achieved by a merger.  "These discussions showed that broader collaboration through a combination would significantly improve the capital efficiency and speed of product development," said the Italian-American company.
Fiat Chrysler owns brands such as Jeep, Dodge, Alfa Romeo and Maserati. merger would create a company with annual car sales of 8.7 million, rank behind Volkswagen and Toyota ( TM )
The proposal is The last example on established car manufacturers seeking partnerships to share the cost of developing new technology, including electric vehicles and autonomous driving systems.
German car manufacturer BMW ( BMWYY ) and ] Daimler ( DDAIF ) has formed a joint venture to develop the tour and charging services. Ford ( F ) and Vo lkswagen ( VLKAF ) work together to develop new cars.
The trend towards collaboration has accelerated in recent months as car manufacturers are more under increased pressure from electric car startup like Tesla ( TSLA ) and technology companies, including Uber ( UBER ) .
Renault is already a member of the world's largest bilalliance with Japanese car manufacturers Nissan ( NSANF ] NSANF ) and Mitsubishi Motors.
It is not clear how a merger with Fiat Chrysler would affect that alliance, which was thrown into turmoil after the arrest last year by its former leader Carlos Ghosn.
Renault has a 43.5% stake in Nissan, while Nissan owns 15% of Renault. The French car manufacturer, which sells fewer cars than its Japanese partner, had pushed for the companies to merge.
Nissan refused to comment on Monday. Representatives of Mitsubishi Motors were not immediately available.
Regulators are likely to investigate any deal between Fiat Chrysler and Renault. But the French government, which owns 15% of Renault, indicated on Monday that it would support a merger.
"We have large companies built outside Europe, and today we need large companies to be built in Europe." Sibeth Ndiaye, a spokesman for the French government, told BFMTV.
Sherisse Pham and Saskya Vandoorne contributed with reporting.