The local authority declined to say how much public money it is paying Town Centre Securities for the lease, citing “commercial sensitivity”, but the Yorkshire Post understands it is £30m.
The council claimed that the agreement to consolidate office space in the city centre under one roof will save it £15m over the coming years.
A spokeswoman for Town Centre Securities told the Yorkshire Post that the company will be investing £20m in the project.
She said: “No figure will be released with regard to the deal itself. The deal will generate a number of local construction jobs.”
Merrion House will undergo a complete refurbishment and a new 50,000 sq ft extension will be added, creating 170,000 sq ft of space.
Staff numbers at the building will rise to 1,900 as 700 council officers move from 13 other buildings in the city.
Edward Ziff, chairman and chief executive of TCS, the listed Leeds-based property investor and developer, described the deal as another achievement for the regeneration of the area around the new Leeds Arena entertainment venue.
He said the quarter is transforming itself into one of the city’s most important destinations.
The deal was announced at the launch of a new Deloitte report on the construction market in the five regional cities of Birmingham, Leeds, Manchester, Edinburgh and Glasgow.
Martin Farrington, director of development at Leeds Council, told the Yorkshire Post: “Leeds City Council has a lease of Merrion House already, for the next 25 years, which we are tied into.
“What we are doing is entering into a new lease with Town Centre Securities for 25 years, but that lease will require the complete reskinning and refitting of Merrion House and also adding a six-storey extension that will enable the council to rationalise its office base and save £15m over the next 25 years in terms of property costs.”
He said the Northern Quarter is establishing itself as a result of the Leeds Arena and added that the Merrion House deal is “another part to that story”.
Estimates suggest that the Arena is worth £25m a year to the city’s economy. It is helping to usher in new investment, including a new five-star Hilton hotel, which will be started next month.
Mr Farrington said the east of the city centre will be anchored by Hammerson’s Victoria Gate retail scheme and enable the development of Kirkgate Market and the Cultural Quarter of Quarry Hill.
He sees the west end of the city as the main area of opportunity for office development with sites held by MEPC and Town Centre Securities. PwC is among firms looking for new space.
He said the Sovereign Street office development to create a new headquarters for accountants KPMG will be “a stepping stone” to the South Bank of Leeds.
Mr Farrington said the swathe of land from Holbeck Urban Village across the Carlsberg Tetley site to the New Dock is “one of the most exciting opportunities in any UK city outside of London”.
The new southern entrance to Leeds train station is critically important to the South Bank area, he said. Work is due to begin before the end of the year, added Mr Farrington.
The main landowners are Homes and Communities Agency, Royal Bank of Scotland, Carlsberg, Allied London and entrepreneur Peter Connolly of Yorkshire Design Group.
Speaking at the launch of the UK Cities Crane Survey 2013, Antony Duggan, head of research at Deloitte Real Estate, said he is seeing more investors “saying now is the time to go out into the UK regions”.
Angela Barnicle, head of Deloitte Real Estate in Leeds, said development in UK cities is up by 20 per cent, with eight new starts in Leeds this year, the best figure since 2008.
Mr Farrington told the audience of 80 property professionals and investors that lessons had been learned from the last decade about design quality.
He described the failed Kissing Towers and Lumiere schemes as “the future that never was”.