The star has agreed to help the band produce the follow-up to 2010 record The Suburbs, and he has been busy in the studio working on new tracks.
Murphy admits the collaboration was a natural progression as he grew close to members of Arcade Fire during years of touring together.
He tells Britain's Daily Star, "The album is going great... They are so good they could produce themselves, so my role in the band depends on the song. Sometimes I'm going around making suggestions and playing instruments, other times I'm just helping the arrangements.
"We feel like part of each other's bands because we toured a lot together over the years."
Murphy retired LCD Soundsystem in 2011.