Could gravitational waves near merging black holes collapse to a black hole themselves? I have understood that merging black holes emit considerable amount of their mass as gravitational waves (up to 5-10%). Based on what I have understood from gravitational waves, the closer black holes are to merging, intensity (both frequency and amplitude) of these waves become stronger. 

I am thus assuming much of the total GW output happens during the last "orbit" of the inspiral, and that the origin of these waves is located within "the final orbit", i.e. really close to event horizons of both black holes, my question is essentially, is it possible for such GW to collapse into a black hole themselves (something like a kugelblitz I believe), since there's just a lot of energy in GWs (say a few solar masses) in such small volume of space (say tens of kms cubed)?

I believe this might depend on the size of merging black holes, as both intensity of GWs as well as size of event horizons depend on the mass. I have a gut feeling that smaller black holes might be closer to this limit but maybe both the intensity and event horizon size depend linearly on the mass, and this does not matter at all.
You might like to look at some of the simulations from the SXS collaboration. Essentially the black holes and the gravitational waves are aspects of the same thing -- the curvature of space. In particular, the way black holes seem to merge in these simulations is that the two black holes come very close and space around them becomes more and more curved (and in more complex ways). Some of that curvature spreads out in the form of gravitational waves, becoming less intense as it gets further away, but some of it, very close to the two black holes reaches the "critical" level of curvature at which an event horizon appears (extending the event horizons of the two black holes) which then "rings down" becoming spherical and form the merged black hole.