Ford Motor Co
The U.S. auto maker will also create new jobs at two German sites as part of a plan that will see B-segment or subcompact cars manufactured in Cologne, Germany and Romania and C-segment or compact cars built in Saarlouis, Germany and Spain.
In Spain, the investment of 812 million euros marks the U.S. carmaker's biggest investment in the country for 35 years.
The 812 million euro announced investment will lead to the creation of hundreds of jobs, said Stephen Odell, chief executive officer of Ford Europe, at an event in Valencia accompanied by the Industry Minister Miguel Sebastian.
Spain has the highest rate of unemployment in the euro zone at 21.3 percent, more than twice the European Union average.
Car sales in the country have slumped in recent months with the end of government incentives as the country embarks on an austerity drive to reign in its budget deficit. Sales fell 23.3 percent in May, the 11th straight month of decline, car association ANFAC reported earlier this month.
The car industry accounts for around 6 percent of Spain's gross domestic product (GDP).
Under the new plan, the Ford plant in Almussafes, on the eastern coast of Spain, will make the Kuga crossover vehicle and the Transit Connect van and continue to produce its C-MAX people carrier model and the 2.0 liter version of its EcoBoost engine.
Ford's Cologne plant will produce a freshened version of the Fiesta from next year. The plant will also start making a small, 1.0 liter engine, called the EcoBoost this year. About 50 new permanent jobs will be added, Ford said in a statement.
The Saarlouis plant, also in Germany, which already builds the Focus range, will produce the Focus electric vehicle from late next year, and in future the next generation Ford Focus. The plant will see about 150 jobs created, Ford said.
The Craiova plant in Romania, will build the new Ford B-MAX multipurpose vehicle from early next year, along with a second B-segment or subcompact car in the future and the 1.0 liter EcoBoost engine in early 2012.
Ford reiterated that it would invest over 675 million euros in modernizing the Craiova plant.
Ford also said it would build an all-new light commercial vehicle at its Ford Otosan plant in Kocaeli, Turkey, as well as the next-generation Transit commercial vehicle.
(Reporting by Robert Hetz, Helen Massy-Beresford and Sonya Dowsett; editing by Sophie Walker)