A statement issued by the England and Wales Cricket Board (ECB) said the inaugural Champions League would involve eight teams playing 15 matches in a 10-day period in late September and early October in either the Middle East or India.
The ECB statement added there would also be "significant sums for the teams finishing second, third and fourth".
The sums of money on offer are huge compared to the figures normally involved in county, state or provincial cricket which, unlike football, mainly takes place around the world in the shadow of the international game.
For example, most of England's 18 first-class counties make a loss and rely on an annual ECB grant of some 1.4 million pounds (2.8 million dollars) to remain afloat.
Talks regarding the Champions League were held last week between ECB chairman Giles Clarke and chief executive David Collier and their Australian counterparts Creagh O'Connor and James Sutherland.
The plans were finalised Friday following discussions between Clarke, Board of Control for Cricket in India representative Lalit Modi and Norman Arendse, the president of Cricket South Africa.
The winners and runners-up in the final of England's Twenty20 Cup at Hampshire's Rose Bowl ground on July 20 will join Rajasthan Royals and Chennai Super Kings from India, South Africa's Titans and KwaZulu Natal Dolphins and Western Australia and Victoria from Australia in the Champions League.
But with both finalists going through to the Champions League, the Twenty20 Cup semi-finals are now of arguably greater significance financially.
"We are extremely grateful to our great friends from Australia, India and South Africa for their hard work and determination to get this tournament off the ground," Clarke said.
"The ECB Twenty20 Cup will be even more fiercely contested this season in the knowledge that the two teams who reach the final will qualify for the Champions League and the chance to win five million dollars.
The former Somerset chairman added: "We are already aware of a number of broadcast and commercial partners who are anxious to become involved with cricket's latest exciting venture."
Twenty20 matches - which last just three hours as compared to five days of Test cricket or eight hours of the 50-overs-a-side game - have become hugely popular across the world.
The showpiece World Cup every four years is played in the 50-over format.
But the last edition in the Caribbean in 2007 was widely derided for its excessive length and lack of exciting cricket when compared to the inaugural World Twenty20 in South Africa later that year.