The U.S. video game giant Electronic Arts (EA) is set to buy its British competitor Codemasters in a deal worth more than $1 billion.

The move derails an earlier agreement between Codemasters and rival U.S. firm Take-Two Interactive Software for $973 million.

Shares in Codemasters jumped 20 percent in London on the announcement.

The deal will bring together EA's games – including the Fifa, Harry Potter and Stars Wars series – with Codemasters' racing titles, Formula One and Dirt Rally.

The gaming industry has gone from strength to strength during the pandemic as people increasingly turned to home entertainment during national lockdowns.

Codemasters' chairman Gerhard Florin said his company "would benefit from EA's knowledge, resources and extensive global scale – both overall and specifically within the racing sector".

California-based EA is one of the largest gaming companies in the world with a market value of nearly $40 billion.

EA's chief executive Andrew Wilson said his company has admired Codemasters for many years.

"Our industry is growing, the racing category is growing, and together we will be positioned to lead in a new era of racing entertainment", added Wilson.

In recent years, Codemasters entered a strategic partnership with the Chinese internet giant, NetEase, offering the company exposure to China's massive gaming market.

Codemasters said it will unanimously back the EA deal to its shareholders and has withdrawn its previous recommendation of Take-Two's earlier offer.

The companies expect the deal to be completed in the first quarter of 2021.

Take-Two is yet to formally respond and rule out the possibility of a bidding war.