The alliance was announced here by state Congress president Pratap Singh Bajwa and PPP president Manpreet Singh Badal in the presence of Congress general secretary Shakeel Ahmed and Leader of Opposition Sunil Jakhar.
"The alliance has been formed to end the misrule of the Akali Dal," Bajwa said.
Manpreet is the estranged nephew of Punjab Chief Minister Parkash Singh Badal and first cousin of ruling Shiromani Akali Dal president and Deputy Chief Minister Sukhbir Singh Badal.
After announcing the alliance, Manpreet said that he would contest from the Bathinda Lok Sabha seat on the PPP's election symbol. He will face Sukhbir Badal's wife Harsimrat Badal, who is the sitting MP.
"We have formed an alliance to expose the drugs mafia in Punjab. The PPP needed support of a national-level secular party," he told media.
The PPP had earlier formed an alliance with Communists and other smaller parties under the banner of 'Sanjha Morcha' just before the January 2012 assembly elections in Punjab. The PPP and the morcha failed to win any seat in the polls.
Manpreet had quit the Punjab government, in which he was finance minister, October 2010 and broken away from the Akali Dal later after ideological differences with chief minister Badal and Sukhbir Badal over governance and subsidies. He floated the PPP later.