The Celtic nations are to link up with four Italian sides and South Africa's top nine provincial teams in a new and exciting competition.
The Rainbow Cup will feature 24 teams playing in a seven-week window in September and October.
It is hoped that the new tournament will commence no later than the 2006/7 season providing that certain criteria is met.
All four Irish and Welsh sides plus the three Scottish teams will take part.
The competition is likely to run along the lines of the Heineken Cup with six groups of four or, eight groups of three, with teams playing their away matches in one bloc similar to the Super 12.
Brian van Rooyen, President of the SA Rugby, stated that he was pleased with the discussions held between the parties.
"The competition has many benefits for SA Rugby," said van Rooyen who will be reporting progress back to the SA President's Council.
SARFU turned their attention to the Celts when their proposals for a joint competition with the English clubs floundered.
It is believed that there are assurances for television and radio broadcasting and sponsorship.
The Italians, meanwhile, have been pushing for inclusion to more European exposure and this is the ideal scenario for them.
Organisers would ideally like the green light to start next season, but changes must be made to the format of the Celtic League with Italian clubs set to join the competition outside of the Rainbow Cup.
Celtic League chairman John Hussey said: "We're very excited about the Rainbow Cup. Everyone is committed to realising the full potential of the competition. This is a good day for world rugby."