Leicestershire County Council and Nottingham City Council have signed a partnership deal to share HR and other administrative functions in a bid to save more than £2 million per year.
The deal - believed to be the first such shared-services agreement involving a county council and a city council from another area - marks the first step of a new East Midlands shared-services centre, which could be used by other authorities in the area.
Leicestershire County Council is already working with Leicester City Council on a shared internal audit service and with Charnwood Borough Council on HR services, while Nottingham City Council remains in discussions over the possibility of joint working arrangements with a number of councils.
Leicestershire County Council leader David Parsons said: "In these challenging times, our innovative agreement shows how authorities can achieve real savings by working together.
"Every pound we save is a pound that we don't have to take away from the frontline. I would encourage other authorities in the Midlands to consider joining us and achieve benefits themselves."
Communities secretary Eric Pickles welcomed the announcement and urged other councils to consider similar initiatives.
"By sharing back office services, they'll be able to protect the frontline - and even improve the choice and services that are on offer to local residents," he said.
"Sharing services is just one of the options open to councils to ensure they are making the most of every pound they have - alongside moves to become more transparent, improve procurement and cut out waste."
Last month, proposals to create the UK's first "super council" were revealed. The London boroughs of Westminster, Hammersmith and Fulham, and Kensington and Chelsea said that all their services would be merged to generate savings of £50 million to £100 million per year. Every service, from chief executive and senior directors to street cleaners and social workers, could be shared, they said in a joint statement.
XpertHR has recently published a case study on an innovative HR shared-services model in Kent that aims to increase efficiency and develop the HR professionals involved.