China on Tuesday unveiled a massive cabinet reshuffle plan to make the government better-structured, more efficient and service-oriented.
The new regulator will be capable of "holding the bottom line to prevent systematic financial risk", the parliament document says.
The banking and insurance regulators will become a single entity, as China is aiming to streamline administration and improve its prevention of financial risks.
On Sunday, China removed presidential term limits from its constitution, giving Xi the right to remain in office indefinitely, and confirming his status as the country's most powerful leader since Mao Zedong died more than 40 years ago.
The two merged regulators will hand off duties such as proposing laws to the People's Bank of China in a sign that the central bank is beefing up its regulatory role.
"Deepening the reform of state institutions is an inevitable requirement for strengthening the long-term governance of the party", said Liu He, President Xi Jinping's top economic adviser.
China is set to create new ministries and merge the banking and insurance regulators in the biggest revamp of its cabinet in years, the parliament said Tuesday.More news: Supreme Court refuses to allow entry of foreign law firms
The plan also includes the merger of the ministry of culture and the national tourism administration into one.
Among the new entities were the ministry of natural resources, ministry of veterans affairs and ministry of emergency management.
State Councilor Wang Yong briefed the lawmakers on the plan.
Established in 1998, CIRC conducts administration, supervision and regulatory functions over the Chinese insurance market.
There will be new administrations under the state council or the central cabinet, such as an worldwide development cooperation agency and a state immigration administration.
Companies registered as banks or insurers have also started dabbling in other areas of finance with many offering complex hybrid products and making non-traditional investments.
Such regulatory arbitrage and risky cross-asset investments have anxious policymakers.