Rolls-Royce says it has agreed to sell its energy gas turbine and compressor business to Siemens for £785m.
Rolls-Royce said late last month it was discussing a possible sale of the business, which has about 2,400 staff.
In 2013, the unit made a profit of £72m on sales of £871m. Its customers include oil and gas companies and firms in the electricity generation sector.
It is dwarfed by Siemens' energy business which has 83,500 staff and generated sales of 27bn euros in 2013.
John Rishton, Rolls-Royce's chief executive, said: "This agreement will give the energy business greater opportunities as part of a much larger energy company and allows Rolls-Royce to concentrate on the areas of business where we can add most value."
The deal comes as Siemens emerges as a possible rival to US conglomerate General Electric in bidding for French group Alstom's power business.
Siemens has also announced that it plans to overhaul its businesses into nine divisions to increase productivity.