The move will consolidate and strengthen Kadokawa's ability to license its vast library of books, animation and films with its main focus on the domestic licensing business.
Kadokawa Production, which begins operations on April 2, will also engage in new business including products aimed at the children's market and artist management activities.
The new company has an initial capitalisation of $855,000 (Y100m), with 50% contributed by KGH and the remaining amount divided among five group companies - including Kadokawa Pictures (movies) and Kadokawa Shoten (publishing).
Kadokawa Shoten president Shin'ichiro Inoue will also serve as president of Kadokawa Production as an additional post.
First order of business will be licensing the successful series of Suzumiya Haruhi novels to game companies. Rights for some 500 initial titles will be handled under Kadokawa Production, including critically acclaimed animated feature The Girl Who Leapt Through Time.
KGH was established in 2003 as a holding company for the Kadokawa Group.