The deal will see acquire Moviechoices.com's customer database and in turn Home Entertainment will take responsibility for LoveFilm's stock management and procurement operation.
The move follows the recent entrance of into the market and the imminent arrival of US market leader Netflix.
In addition, LoveFilm has agreed an exclusive three-year partnership with book club and Moviechoices.com partner BCA to provide a co-branded online DVD rental service to BCA's 1.5m UK members.
Mark Livingstone, CEO of LoveFilm, said: "By adding the Moviechoices.com database to the market leader we have established an even stronger lead in this market.
"By eliminating the direct competition between the two companies, we can now work more closely on initiatives to grow our service. Clearly, the exclusive marketing deal with BCA is a great example of this."
Home Entertainment Corp, which also operates Choices Video retail chain, said the partnership drew on the strengths of the organisations involved to the benefit of customers.
While the deal has immediate effect, it is envisaged Moviechoices.com customers will gradually migrate over to the LoveFilm brand.
LoveFilm has more than 50,000 subscribers and has created a number of strategic links with high-street names including WH Smith, Sainsbury's, Woolworths and MVC, and online entertainment retailer CD-Wow; brand partnerships with Sony and Lastminute.com; as well as media alliances with Trinity Mirror Group and Film Four.
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