The collision happened on the B4451 at about 6pm and involved a white BMW and a grey Ford Fiesta.
The driver of the BMW failed to stop at the scene.
The driver and passenger from the Fiesta, a 56-year-old woman and an 80-year-old woman, were taken to University Hospital Coventry and Warwickshire with serious injuries.
The older woman died in hospital yesterday (Thursday) morning .
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A 24-year-old man from Banbury was arrested last night in connection with the incident.
He is currently in custody awaiting questioning.
Officers investigating the incident would like to hear from anyone who may have witnessed the incident and if they have any dash cam footage before, during or after the collision occurred.
Anyone with information is asked to call Warwickshire Police on 415415 quoting incident 310 of 15 February.