Filipino Pacquiao, has won six world titles in as many different weight divisions, while Puerto Rico's Cotto is the WBO welterweight world champion.
Promoter Bob Arum, who represents both fighters said: "Manny Pacquiao and Miguel Cotto have reached an agreement to fight at the MGM Grand Garden Arena.
"I'm really excited because it's a real fight. These are two real warriors."
Pacquiao has risen to the top of the pound-for-pound rankings over the past 19 months thanks to victories in four different weight divisions.
He beat Juan Manuel Marquez (super-featherweight), David Diaz (lightweight), Oscar de la Hoya (welterweight) and most recently Ricky Hatton (light-welterweight) in May.
Cotto was in action more recently, narrowly defeating Ghana's Joshua Clottey by split decision at New York's Madison Square Garden last month.
Arum added: "Whichever way this fight goes, I think it's going to be a classic because of the way these guys fight. There where will be a lot of engagement.
"They're great fighters. Cotto and Pacquiao are gutty guys. If you want blood and action and excitement, this is the fight."
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