Huawei said Honor had been under "tremendous pressure" due to "a persistent unavailability of technical elements".
After introducing the Honor 20 series in 2019, the Huawei sub-brand has faced the same restrictions as Huawei from the United States government. "It is the best solution to protect the interests of Honor's consumers, channel sellers, suppliers, partners and employees", according to the joint statement released by the agents and dealers.
The deal includes Huawei selling "all business assets related to the Honor Brand", and it also states that "once the acquisition is complete, Huawei will not hold any shares in the new Honor company".
© Provided by Associated Press An attendee at a launch event for Huawei's Honor brand mobile phone stands near the brand logo in Beijing, China, Tuesday, May 10, 2016.
That said, we have no information on how Honor's new owners planned to regain access to USA chips and other technologies including Google services.
Chinese telecom giant Huawei announced Tuesday it has sold its Honor budget phone line to a domestic consortium in a move it said was necessary to keep the brand alive amid "tremendous" supply chain pressures caused by USA sanctions.
"This move has been made by Honor's industry chain to ensure its own survival", the company said in a statement. In the future, Honor could welcome more investors, said sources familiar with the matter.
The analyst added that if U.S. President-elect Joe Biden eases export control rules on Huawei, it could leave the newly spun-off Honor in an awkward position.
Offloading Honor will give Huawei some "breathing room" on the sourcing side for its premium business while it focuses on developing its proprietary HarmonyOS for smartphones, said Nicole Peng, vice president of mobility at industry research consultancy Canalys.
Some chip suppliers, such as Intel and AMD, as well as image sensor providers Sony and Omnivision, have received licenses from the USA government to resume some business with Huawei, though it is not yet clear exactly what products those licenses cover, Nikkei reported earlier.
Honor's sales helped Huawei overtake Apple as the world's second-biggest smartphone maker by shipments a year ago.
Other Chinese smartphone brands such as Xiaomi, Oppo and Vivo operate without such restrictions.
The US imposed sanctions in the spring of 2019, blocking Huawei's access to most US processor chips and other technology. According to a press statement, the sale will help HONOR's channel sellers and suppliers "make it through this hard time".
Earlier reports on rumours of a possible sale put the price as high as 100 billion yuan (£11 billion).