The two companies said in a statement that they will share advertising revenue on YouTube and VEVO.com, which they described as a "premium online music video hub built for consumers, advertisers and content owners."
"This content will be exclusively available through VEVO.com and a new VEVO channel through a special VEVO branded embedded player," they said.
"VEVO will bring the most compelling premium music video content and services to the world's single largest online video audience," said Universal chief executive Doug Morris.
"We believe that at launch, VEVO will already have more traffic than any other music video site in the United States and in the world."
Google chief executive Eric Schmidt said the Internet search giant, which will provide the technology for VEVO.com, is "thrilled to be working with UMG in what will surely be an exciting new service for consumers, advertisers, content creators and the music industry at large."
Music videos are among the most popular content on YouTube, which Google bought for 1.65 billion dollars in October 2006, and Universal's channel is already the most-watched on the site with more than 3.5 billion views.
Mountain View, California-based Google has been striving for ways to make money on YouTube while avoiding alienating notoriously transient Web users and assuring film and music studios that video copyrights are being respected.
Warner Music Group pulled its videos from YouTube in December after the companies failed to reach agreement on fees but another major label, Sony Music Entertainment, inked a new deal with YouTube this year.
YouTube began blocking certain copyrighted music videos in Britain and Germany earlier this year while new licensing deals are negotiated.
As album sales decline and online piracy bites into their profits, major record labels have been forging new arrangements such as deals with MySpace, Apple's iTunes and YouTube to generate new revenue streams.
The number of US Internet users watching videos at YouTube hit a new monthly high in January, topping 100 million as it dominated the online video arena, according to comScore.
And Google may have more than one major new venture in mind.
Twitter co-founder Biz Stone said on Friday following a report that Google was seeking to purchase the hot micro-blogging service that his goal was to build a "profitable, independent company."
Stone, in a brief post on the Twitter blog, said that "it should come as no surprise that Twitter engages in discussions with other companies regularly and on a variety of subjects.
"Our goal is to build a profitable, independent company and we're just getting started," Stone said in the post, which he called "a response to the latest Internet speculation about where Twitter is headed."
Stone's comments came hours after influential technology blogger Michael Arrington, writing on his blog TechCrunch, said Internet search giant Google was in talks to acquire the hot San Francisco-based startup.