The tie-up will give the world's biggest mobile phone company category exclusivity and see it become an issuing partner alongside Nectar's founding partners Sainsbury's, BP, Barclaycard and Debenhams. Off-licence group First Quench signed up as the fifth issuing partner last week.
Vodafone is expected to start issuing points some time in the first half of next year, although it is not yet clear how the scheme will operate.
The deal comes as Nectar's parent company Loyalty Management UK has hired web agency Conchango to overhaul its much-maligned web site for a relaunch in April. The existing site crashed under the weight of customers trying to sign up to the scheme.
In 2000 Vodafone's then commercial director Paul Donovan, ended its association with Air Miles because it found customers preferred cheaper tariffs to a loyalty scheme.
Lance Batchelor, Vodafone's UK marketing director, said: "We've been impressed with Nectar's recent explosive growth. Vodafone is the number one in terms of revenue and such a combination would be hard to beat."
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