diff --git a/gutenberg b/gutenberg
index bcd13aa20c37d2..08897864660d68 160000
--- a/gutenberg
+++ b/gutenberg
@@ -1 +1 @@
-Subproject commit bcd13aa20c37d28e0b7d9a3f810f4b8004fb5023
+Subproject commit 08897864660d68efb226c19b685699992598b791
diff --git a/src/app/AppContainer.js b/src/app/AppContainer.js
index 17fcba40fd2f38..1689e6fbfd7d8d 100644
--- a/src/app/AppContainer.js
+++ b/src/app/AppContainer.js
@@ -10,6 +10,7 @@ import {
 	deleteBlockAction,
 	createBlockAction,
 	parseBlocksAction,
+	mergeBlocksAction,
 } from '../store/actions';
 import MainApp from './MainApp';
 
@@ -41,6 +42,9 @@ const mapDispatchToProps = ( dispatch, ownProps ) => {
 		parseBlocksAction: ( html ) => {
 			dispatch( parseBlocksAction( html ) );
 		},
+		mergeBlocksAction: ( blockOneClientId, blockTwoClientId, block ) => {
+			dispatch( mergeBlocksAction( blockOneClientId, blockTwoClientId, block ) );
+		},
 	};
 };
 
diff --git a/src/block-management/block-holder.js b/src/block-management/block-holder.js
index 955b029fdcc5fd..6d05be9dbadacd 100644
--- a/src/block-management/block-holder.js
+++ b/src/block-management/block-holder.js
@@ -20,6 +20,7 @@ type PropsType = BlockType & {
 	onToolbarButtonPressed: ( button: number, clientId: string ) => void,
 	onBlockHolderPressed: ( clientId: string ) => void,
 	insertBlocksAfter: ( blocks: Array<Object> ) => void,
+	mergeBlocks: ( forward: boolean ) => void,
 };
 
 type StateType = {
@@ -71,6 +72,7 @@ export default class BlockHolder extends React.Component<PropsType, StateType> {
 					this.props.onChange( this.props.clientId, { ...this.props.attributes, ...attrs } )
 				}
 				insertBlocksAfter={ this.props.insertBlocksAfter }
+				mergeBlocks={ this.props.mergeBlocks }
 				isSelected={ this.props.focused }
 				style={ style }
 			/>
diff --git a/src/block-management/block-manager.js b/src/block-management/block-manager.js
index 08f6d905b9907d..717e556b615bf4 100644
--- a/src/block-management/block-manager.js
+++ b/src/block-management/block-manager.js
@@ -14,7 +14,7 @@ import BlockPicker from './block-picker';
 import HTMLTextInput from '../components/html-text-input';
 
 // Gutenberg imports
-import { createBlock } from '@wordpress/blocks';
+import { createBlock, getBlockType, switchToBlockType } from '@wordpress/blocks';
 
 export type BlockListType = {
 	onChange: ( clientId: string, attributes: mixed ) => void,
@@ -24,6 +24,7 @@ export type BlockListType = {
 	deleteBlockAction: string => mixed,
 	createBlockAction: ( string, BlockType, string ) => mixed,
 	parseBlocksAction: string => mixed,
+	mergeBlocksAction: ( string, string, BlockType ) => mixed,
 	blocks: Array<BlockType>,
 	aztechtml: string,
 	refresh: boolean,
@@ -154,6 +155,73 @@ export default class BlockManager extends React.Component<PropsType, StateType>
 		this.props.focusBlockAction( newBlock.clientId ); // this not working atm
 	}
 
+	mergeBlocks( clientId: string, forward: boolean ) {
+		// find currently focused block
+		const focusedItemIndex = this.getDataSourceIndexFromClientId( clientId );
+		// Do nothing when it's the first block and backspace is pressed
+		// Do nothing when it's the last block and delete is pressed
+		if (
+			( ! forward && focusedItemIndex === 0 ) ||
+			( forward && ! focusedItemIndex === this.state.dataSource.size() - 1 )
+		) {
+			return;
+		}
+
+		let blockA = null;
+		let blockB = null;
+		if ( forward ) {
+			blockA = this.state.dataSource.get( focusedItemIndex );
+			blockB = this.state.dataSource.get( focusedItemIndex + 1 );
+		} else {
+			blockA = this.state.dataSource.get( focusedItemIndex - 1 );
+			blockB = this.state.dataSource.get( focusedItemIndex );
+		}
+
+		const blockType = getBlockType( blockA.name );
+
+		// Only focus the previous block if it's not mergeable
+		if ( ! blockType.merge ) {
+			// TO DO: move the focus to the prev block
+			return;
+		}
+
+		// TODO: there is a problem with block transformation
+		// let's stop here until we fix the problems with block transformation routine
+		if ( blockA.name !== blockB.name ) {
+			return;
+		}
+
+		// We can only merge blocks with similar types
+		// thus, we transform the block to merge first
+		const blocksWithTheSameType = blockA.name === blockB.name ?
+			[ blockB ] :
+			switchToBlockType( blockB, blockA.name );
+
+		// If the block types can not match, do nothing
+		if ( ! blocksWithTheSameType || ! blocksWithTheSameType.length ) {
+			return;
+		}
+
+		// Calling the merge to update the attributes and remove the block to be merged
+		const updatedAttributes = blockType.merge(
+			blockA.attributes,
+			blocksWithTheSameType[ 0 ].attributes
+		);
+
+		const newBlock = {
+			...blockA,
+			attributes: {
+				...blockA.attributes,
+				...updatedAttributes,
+			},
+		};
+		newBlock.focused = true;
+
+		// set it into the datasource, and use the same object instance to send it to props/redux
+		this.state.dataSource.splice( this.getDataSourceIndexFromClientId( blockA.clientId ), 2, newBlock );
+		this.props.mergeBlocksAction( blockA.clientId, blockB.clientId, newBlock );
+	}
+
 	onChange( clientId: string, attributes: mixed ) {
 		// Update Redux store
 		this.props.onChange( clientId, attributes );
@@ -270,6 +338,9 @@ export default class BlockManager extends React.Component<PropsType, StateType>
 					insertBlocksAfter={ ( blocks ) =>
 						this.insertBlocksAfter.bind( this )( value.item.clientId, blocks )
 					}
+					mergeBlocks={ ( forward = false ) =>
+						this.mergeBlocks.bind( this )( value.item.clientId, forward )
+					}
 					{ ...value.item }
 				/>
 				{ this.state.blockTypePickerVisible && value.item.focused && insertHere }
diff --git a/src/store/actions/ActionTypes.js b/src/store/actions/ActionTypes.js
index 63a9c57bf74ed0..a01e0f25f9aa3f 100644
--- a/src/store/actions/ActionTypes.js
+++ b/src/store/actions/ActionTypes.js
@@ -12,5 +12,6 @@ export default {
 		DELETE: 'BLOCK_DELETE_ACTION',
 		CREATE: 'BLOCK_CREATE_ACTION',
 		PARSE: 'BLOCK_PARSE_ACTION',
+		MERGE: 'BLOCKS_MERGE_ACTION',
 	},
 };
diff --git a/src/store/actions/index.js b/src/store/actions/index.js
index a4698c4c025131..f0babe0539924a 100644
--- a/src/store/actions/index.js
+++ b/src/store/actions/index.js
@@ -23,6 +23,13 @@ export type ParseActionType = string => {
 	html: string,
 };
 
+export type BlocksActionType = ( string, string, BlockType ) => {
+	type: $Values<typeof ActionTypes.BLOCK>,
+	blockOneClientId: string,
+	blockTwoClientId: string,
+	block: BlockType,
+};
+
 export function updateBlockAttributes( clientId: string, attributes: mixed ) {
 	return {
 		type: ActionTypes.BLOCK.UPDATE_ATTRIBUTES,
@@ -62,3 +69,10 @@ export const parseBlocksAction: ParseActionType = ( html ) => ( {
 	type: ActionTypes.BLOCK.PARSE,
 	html,
 } );
+
+export const mergeBlocksAction: BlocksActionType = ( blockOneClientId, blockTwoClientId, block ) => ( {
+	type: ActionTypes.BLOCK.MERGE,
+	blockOneClientId,
+	blockTwoClientId,
+	block,
+} );
diff --git a/src/store/reducers/index.js b/src/store/reducers/index.js
index 1593fb9be3c86b..b55475dffd65c6 100644
--- a/src/store/reducers/index.js
+++ b/src/store/reducers/index.js
@@ -122,6 +122,11 @@ export const reducer = (
 			const parsed = parse( action.html );
 			return { blocks: parsed, refresh: ! state.refresh, fullparse: true };
 		}
+		case ActionTypes.BLOCK.MERGE: {
+			const index = findBlockIndex( blocks, action.blockOneClientId );
+			blocks.splice( index, 2, action.block );
+			return { blocks: blocks, refresh: ! state.refresh };
+		}
 		default:
 			return state;
 	}