Direct observational evidence for the creation of nuclear star clusters (NSCs) is needed to support the proposed scenarios for their formation. We analysed the dwarf galaxy UGC 7346, located in the peripheral regions of the Virgo Cluster, to highlight a series of properties that indicate the formation of a NSC caught in its earlier stages. First, we report on remnants of a past interaction in the form of diffuse streams or shells, suggesting a recent merging of two dwarf galaxies with a 1:5 stellar mass ratio. Second, we identify a number of globular cluster (GC) candidates that are broadly compatible in colour with the main component that is both more extended and more massive. Strikingly, we find these GCs candidates to be highly concentrated towards the centre of the galaxy (RGC = 0.41 Re). We suggest that the central concentration of the GCs is likely produced by the dynamical friction of this merger. This would make UGC 7346 a unique case of a galaxy caught in the earlier stages of NSC formation. The formation of NSCs due to collapse of GCs by dynamical friction in dwarf mergers would provide a natural explanation of the environmental correlations found for the nucleation fraction for early-type dwarf galaxies, whereby denser environments host galaxies with a higher nucleation fraction.