Racing and Stade Francais are two of the biggest rivals in the French championship and the merger from next season came as a lightning bolt for European rugby.
Rivals expressed concern about the creation of a rugby behemoth as Racing's real estate billionaire owner Jacky Lorenzetti said he wanted to "build day after day the reference of French rugby."
"The merger will create a super club," said Yann Roubert, the president of Lyon. "The combined talents of these two clubs, the last two champions of France, are pretty formidable."
Toulon owner Mourad Boudjellal said the deal would change the face of Top 14 rugby.
"We have entered a new era of big capitalism, where money comes before the human aspect," he said, decrying the fact that top players would lose their jobs.
Lorenzetti said in a letter to supporters that the two Racing coaches Laurent Travers and Laurent Labit, who will take over coaching duties at the new club, would have to "make choices".
"Players will be axed," he warned.
"They've got 45 players, we've got 45 players, 45 + 45 = 45," he said.
"Merit will be the criteria, probably youth and the factor of being selectable" for France, Lorenzetti said.
Opposition to the merger came swiftly from disgruntled Stade Francais players with French international fullback Eric Bonneval tweeting: "13/03.2017: END."
"This is not a merger. Stade Francais has been bought by Racing... This is the death of our club... " said lock Paul Gabrillagues.
"I won't be part of this," said Stade backrower Sekou Macalou while teammate and international lock Pascal Pape tweeted: "My sadness is so great."
The news sent shockwaves through France's rugby federation (FFR).
"The FFR is shocked to learn via the media this project leading to the disappearance of one of the two biggest clubs in French rugby," a statement announced.
The federation added it was "extremely stunned at the supposed creation of a new club without being consulted".
Lorenzetti has spent heavily on top talent such as All Black legend Dan Carter, now in the second year of a three-year deal.
Racing won the championship last year, but are now slumbering in seventh and Carter was jeered off the pitch after a weekend defeat to leaders La Rochelle.
Stade Francais counterpart Thomas Savare, a finance and credit card technology tycoon, has likewise paid heavily for the likes of Italian captain Sergio Parisse, Australian scrum-half Will Genia and South African fly-half Morne Steyn.
His team, triumphant in 2015, are currently 12th.
The deal will have major implications for the Top 14 and European club rugby with the emergence of a major new force and the disappearance of a historic one.
Each club has built, or is building, a new stadium as well as big squads. No immediate details were given of their ground plans, but Lorenzetti said: "We will be thinking about that in the coming days."
Racing were languishing in France's second division when Lorenzetti bought them in 2006. Savare took over Stade Francais in 2011 when they were threatened with bankruptcy and relegation.
The clubs have spent hundreds of millions of euros on redeveloping and acquiring new players since 2010.
Stade Francais's Jean Bouin stadium, owned by the city of Paris, was redeveloped in 2013 and reopened with capacity increased from 13,000 to 20,000.
Racing are building a new 220 million-euro 32,000-seat stadium in the La Defense business district. It should have opened in January but this has been put back to the end of the year.
The French National Rugby League (LNR) said in a statement it was following the merger and would "accompany the management teams in the weeks ahead towards the realisation of the project."
An immediate consequence of killing off one Top 14 team means that the 13th placed XV -- currently Grenoble -- will now probably avoid relegation.
Racing and Stade Francais were among the first clubs created when rugby union was introduced to France in the 19th century. Racing won the first championship final against Stade in 1892. Stade got their revenge the following year.