(Reuters) - British insurer Aviva has reached an agreement to buy smaller rival Direct Line in a 3.7 billion pound ($4.65 billion) cash-and-stock deal, the companies said on Monday, creating the UK's largest home and motor insurer.

Aviva and Direct Line had reached a preliminary agreement in early December. Aviva had until Christmas Day to make a formal offer or walk away under UK takeover rules.

($1 = 0.7957 pounds)

(Reporting by Chandini Monnappa and Aby Jose Koilparambil in Bengaluru; Editing by Varun H K)