The deal lifts Siemens into number two position in the world's pounds 30bn power generation market, behind General Electric of the US, and creates a grouping with sales of pounds 4.5bn.
Siemens bought the NEI Parsons power generation business from Rolls-Royce earlier this year.
The agreement involves only Westinghouse's fossil-fuel power station business. The US group is seeking separate buyers for its nuclear energy systems business and another division which handles nuclear material for the US military and Department of Energy.
Westinghouse's power generation business has a workforce of 8,000 and sales last year of $2.2bn. It supplies gas turbines and steam turbines. Siemens Power Generation had sales last year of pounds 3.2bn and has 11,500 employees. Together the two businesses will control about 12 per cent of the market compared with GE's 15 per cent.