The new firm, trading under the Colnaghi name, will move from Old Bond Street to a larger custom built gallery in St James's.
The 4000 sq ft street level gallery, which is expected to be completed in the first half of next year, has been developed by The Crown Estate, who also support London Art Week, as part of a £500m investment in its St James's portfolio.
Colnaghi's extensive library will sit at the heart of the new gallery while the archives, currently stored at Windmill Hill on the Waddesdon Estate in Buckinghamshire, will remain in place.
Colnaghi chairman Konrad Bernheimer, who acquired the 255-year-old firm in 2002, said he was looking forward to working with Jorge Coll and Nicolás Cortés, young dealers who are known for their alternative approach to presenting Old Masters. "Ever since I first took ownership of Colnaghi, I have always recognised that a large part of my role has been as a steward for the business and a custodian of its legacy," he said.
"The decision of my business partner, Katrin Bellinger, to cease trading has coincided with my 65th year, and we are determined to position the company in a way that it will continue to thrive into the future."
Coll & Cortés, whose specialism is art from the Spanish-speaking world, will continue to trade under their own name in Madrid for the foreseeable future.
In May, Bernheimer announced the family's fourth-generation Munich art dealership will move from its traditional Old Master specialism to concentrate on Modern and Contemporary art under the direction of his daughters.
As part of this move, on November 25, Sotheby's will host a sale of the Bernheimer family collection, containing artworks and objects from both the Munich gallery, Bernheimer Old Masters and the family's country seat, Burg Marquartstein. This medieval castle, situated between Munich and Salzburg, will also be sold through Sotheby's International Realty.
Katrin Bellinger, a dealer and collector in Old Master drawings, joined Bernheimer shortly after he acquired the firm in 2002, trading as Katrin Bellinger at Colnaghi.
She will stop trading at the end of the year to focus on her commitments in the museum world and on the Tavalozza Foundation, the not-for-profit organisation she founded in 2001.
Regarding their archives at Waddesdon, Colnaghi said they remain fully committed to encouraging research and scholarship and to widening the accessibility of the archive. They have already funded the cataloguing of the archive and, far from the archive moving back to London as was previously reported, it will remain in situ at Windmill Hill/Waddesdon where it is currently well looked after by their archivists.
It will be one of the principal focuses of a new MA course on the Art Market and History of Collecting, which is being run by the National Gallery and The University of Buckingham in association with Waddesdon Manor (The Rothschild Collections).
The programme, which starts in January 2016, will bring together two of the greatest London art dealer archives: The Agnews archive (at the National Gallery) and the Colnaghi archive. Scholarships are available (generously funded by Colnaghi), to support this further study of the art market.