The 82-year-old Peres, who has held every major Cabinet position, left Labor after his humiliating loss to union leader Amir Peretz in the race for party leader three weeks ago.
He said he was supporting Sharon because he had the best chance of restarting the peace process with the Palestinians.
"This has not been an easy decision for me, but I found myself faced with the contradiction between the party of which I am a member, and the requirements of the political situation," Peres said.
"Without ignoring the deep connection that I have to the party's historical path and its members, I must prefer the more urgent and greater consideration ... My party activity has come to an end."
Peres' defection was a coup for the premier's new Kadima Party as the major political factions scramble to snare high-profile supporters before March parliamentary elections. Many Israelis respect Peres for his decades of service to the country, but some view him warily as a dove and political opportunist.
Under a reported deal worked out with Sharon, Peres would campaign for the prime minister without officially joining Kadima. If Sharon wins, Peres would receive a senior Cabinet post, either dealing with the peace process or with his pet project to develop Israel's sparsely populated Negev desert and northern Galilee regions.
"I don't believe that it is possible to push forward the peace process in the current political constellation," Peres said. "I believe the most qualified person for this is Ariel Sharon.
"He will restart the peace process right after the election. I decided to join him and work with him."
Peres shared the 1994 Nobel Peace Prize with assassinated Israeli Prime Minister Yitzhak Rabin and Yasser Arafat for the Oslo interim peace accords with the Palestinians.
Sharon's new allies have said the prime minister, if re-elected, would strive to draw Israel's final borders and wrap up a peace agreement with the Palestinians in his third term. However, they have also said Israel wants to keep all of Jerusalem and the areas of the West Bank with large Jewish settlements — an offer the Palestinians reject.
The alliance between Peres and Sharon, who have been both foes and occasional partners in the past three decades, caps a month of political upheaval.
The shake-up began in early November when Peretz ousted Peres as Labor Party chief. Barely two weeks later, Sharon, 77, announced he was quitting the Likud, which he helped found three decades ago, and was forming the moderate Kadima.
In a poll published Wednesday in the Yediot Ahronot daily newspaper, Kadima would win 34 seats in the 120-member parliament, up one from a survey last week.
Labor, Kadima's most likely coalition partner, also gained a seat, for a new total of 27, according to the poll by the independent Dahaf Institute.
Likud, which dominated Israeli politics for three decades, dropped from 40 to 10 seats, making it the fourth-largest party, after the ultra-Orthodox Shas. The poll had an error margin of 4 percentage points.
"Sharon blitzed the Likud," political analyst Hanan Crystal said on Israel Radio. "He took one-third of the party (legislators) and most Likud voters."
Dalia Itzik, a former Labor Cabinet minister who defected to Kadima on Tuesday and is considered to be close to Peres, said the decision-making process was difficult for the former prime minister.
"It sounds like a cliche — you're leaving the home. It is really hard. These are your friends, this is your family, this is your milieu. It is really difficult," Itzik told Israel's Army Radio.
Late Tuesday, Sharon picked up more political clout, with 72 mayors, most from Labor and Likud, attending a meeting at his official residence in Jerusalem. Many of the mayors declared their support for Sharon, saying they were disenchanted with their own movements.
Sharon's party does not have a grass-roots organization yet, and the mayors could help fill the gap.
"I came to join his new party, Kadima, after my party was taken over by different people who threw out the landlords," said Rishon Lezion Mayor Meir Nitzan, who handed back his Labor Party membership card — signed in 1950 by Israel's founder David Ben-Gurion — during the dinner at Sharon's house.
"The right place, based on what I see, based on the platform being formed, is in Sharon's party," Nitzan told Israel's Army Radio.