Sainsbury's has tabled an improved £1.3 billion offer for Argos owner Home Retail Group and vowed to create a "world-leading" retailer bigger than rivals John Lewis and Amazon UK.

The supermarket giant said its proposed cash-and-shares deal - valuing Home Retail Group at 161.3 pence per share - would create the UK's largest non-food store worth £6 billion.

Chief executive Mike Coupe threw down the gauntlet to his retail rivals as he said the tie-up would forge "an industry-leading if not world-leading" network, offering more than 100,000 products across Argos and Sainsbury's stores.

The two companies have now agreed a three-week extension on the deadline of the deal to 5pm on Tuesday February 23 in order to complete the due diligence on the proposed offer.

But the £340 million sale of Home Retail Group's DIY chain, Homebase, to Australian business Wesfarmers is said to be a condition of the deal going ahead.

As part of the offer, Home Retail Group shareholders will own about 12% of the combined group and get a further £200 million from the sale of Homebase.

Undated file photos of the store logos of Sainsbury's, which has launched a £1.3 billion bid for Home Retail Group, owners of Argos and Homebase

The new proposal - which would need the approval of shareholders and the competition watchdog - comes after an initial offer from Sainsbury's for £1 billion was rebuffed in November.

Mr Coupe said the combination of the two companies would create the "food and non-food retailer of choice" with 2,000 combined stores.

He said the business would compete "with many different companies in many different sectors", including Amazon and John Lewis.

He added: "Our customers want us to offer more choice and for that choice to be faster than ever, driven by the rise of mobile phone and digital technology. It will enhance both businesses in the way customers respond."

But he also warned that "it was not over until it was over" and there was always a risk another company would table a rival bid.

If approved, the combination of the two companies would trigger cost savings of about £120 million in the third full year after the deal is complete, Sainsbury's said.

It is estimated that around half the savings - £60 million - would come from relocating Argos stores into Sainsbury's supermarkets as concessions, as well as launching new Argos concessions and expanding Sainsbury's click and collect service.

It also expects to deliver a further £40 million of savings by combining the two teams at its head offices, while a further £20 million of synergies would come from selling Sainsbury's clothing and homeware products to Argos customers.

But the supermarket said it would see one-off costs of £140 million, spread over three years, in order to roll out the plans.

It comes after the Big Four supermarket said previously that it could shut a raft of Argos stores and relocate them within its supermarkets if the deal was given the go-ahead.

Retail experts believe between 150 and 200 Argos stores could be impacted, but Sainsbury's would not be drawn on how many it would close.