BRATISLAVA - South Korea's No. 2 carmaker Kia Motors said on Thursday it will invest 100 million euros ($137 million) building a new engine plant at its assembly site in Slovakia.

Kia's Slovak site has an annual production capacity of 300,000 cars. The company said in February it planned to boost car production in Slovakia by 40 percent this year, driven mainly by rising demand in the SUV market.

The planned investment will boost Kia's annual production capacity in Slovakia by 150,000 units for a total output of 450,000 engines.

The planned engines are destined for the car assembly plant of Hyundai Motors in the neighbouring Czech republic, the company said.

A launch of a serial production at the new engine plant is planned for the end of 2011. Kia Motors Slovakia plans to reach the full annual production capacity of 150,000 engines in 2012, the company said in a statement.

The 63 billion euro, heavily export-reliant economy, is strongly driven by the automotive industry, centred around Kia Motors, Germany's Volkswagen and French PSA Peugeot Citroen's  assembly plants.

Kia which is among the country's key exporters, launched production in the central European country in December 2006 and has produced more than 540,000 cars.

The government of Prime Minister Robert Fico, running for re-election in a June general election, approved an incentive package worth 15.07 million euros, in form of tax breaks, for the Kia project last July. (Reporting by Martin Santa; Editing by Rupert Winchester)