The accord between Sebastian Kurz's People's Party (OeVP) and the anti-immigration Freedom Party (FPOe) announced late Friday will see Kurz, 31, become chancellor and also the world's youngest leader.
"We are happy that we have reached this agreement. Tomorrow [Saturday] we will inform the president about our programme and our team," Kurz, foreign minister in the outgoing government, told reporters in Vienna.
"Voters gave us a clear mandate to take into account their concerns, particularly when it comes their security," FPOe chief Heinz-Christian Strache told the same news conference.
The OeVP came first in the October 15 vote with 31.5 percent after Kurz, nicknamed "wunderwuzzi" ("whizz-kid"), rebranded the staid party as his own personal "movement", promising to get tough on immigration and lower taxes.
The anti-immigration FPOe came third with 26 percent of the vote, double the stunning 13 percent notched by Alternative for Germany (AfD) in elections the month before.
Both the OeVP and the FPOe ran on promises of cutting benefits for all foreigners, even from the rest of the EU, slashing bureaucracy and stopping the European Union having too much say in national affairs.
They stoked concerns about newcomers following a record influx of migrants in 2015 and fatigue with the previous unhappy "grand coalition" of the OeVP with the centre-left Social Democrats (SPOe).
This was mirrored elsewhere, with Geert Wilders' Freedom Party now the second-largest in the Netherlands, France's National Front in a runoff for the presidency in May and AfD entering the Bundestag and re-drawing Germany's political map.
Real power
But the FPOe is rare in western Europe in having translated its ballot box success into real power. Last year it came close to winning the largely ceremonial presidency.
Strache, 48, is set to become deputy chancellor. According to Der Standard's online edition, the party has also secured the interior and the defence ministries.
A seasoned diplomat close to the FPOe, although not a member, is set to be foreign minister. The OeVP will obtain the finance, economy and justice ministries, amongst others, Der Standard said.
The paper said in an editorial that coupled with an expected "extremely restrictive refugees policy", it was "sinister and worrying" that all intelligence services will be FPOe-controlled.
The last time the FPOe entered government, in 2000 under controversial then-leader Joerg Haider, now dead, Austria was briefly ostracised within the European Union.
This time though the reaction is likely to be much more muted with the FPOe seen as having mellowed and with
Europe more inured to right-wing parties.
Several different groups including the anti-fascist "Offensive against the Right" have said they plan to stage demonstrations on Monday in Vienna.
'Dangerous' Merkel
The FPOe, which has a partnership with Russian President Vladimir Putin's ruling party, wants EU sanctions on Moscow lifted and says Islam is not part of Austria.
In 2016 Strache called German Chancellor Angela Merkel "the most dangerous woman in Europe" over her open-door migrants policy, and warned of "civil war in medium term" because of immigration.
The FPOe is also ambivalent about the European Union.
But Kurz said on Thursday that the "pro-European" stance of the incoming government "has been secured". He reportedly aims to retain control of Austria's EU affairs.
Further details on the new coalition's plans were expected Saturday once the two parties approve the agreement. The government will be sworn in next week.
One notable measure to have emerged so far from the coalition talks is a pledge to scrap a law that would have banned smoking from all bars and restaurants from May 2018.
The parties are also said to have agreed on cutting tax and other salary charges and loosening labour laws. The FPOe also wants more "direct democracy".
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