I want to use the conents of both those file handles after each loop, dump the contents into an output file and then make them empty and continue with the next iteration.

So, why don't you just do that? Where exactly are you having problems? You can read from the file handles line by line and output each line as you've read it.

The customer does not want to wait until the script executes on all the 4 million lines. He expects something to be logged after each line in the input file is processed.