Japan's Nissan Motor Co will begin building the Leaf electric compact car at its Sunderland plant from early 2013, making Britain its third global production site for the zero-emission vehicle.
Nissan, Japan's No.3 automaker held 44 percent by Renault SA, had already announced plans to make batteries for the electric cars in Sunderland, but had been considering several sites for European production of the car itself.
Nissan said in a statement on Thursday that the Sunderland site would start with annual production capacity of 50,000 Leaf cars.
Carmakers worldwide are investing large sums in electric vehicles as they seek to meet ever-tighter regulations for emissions and struggle to pull themselves out of a savage industry downturn.
Nissan and Renault are by far the most aggressive proponents of electric vehicle technology among major automakers, together investing around 4 billion euros ($5.5 billion) in electric vehicle projects and committing to production capacity so far of 500,000 zero-emission cars a year.
Nissan has already announced production of the all-electric Leaf hatchback first at its Oppama plant in Japan from this year and at its Smyrna, Tennessee, factory in the United States from 2012. The car is due to go on sale in Japan, the United States and some European markets at the end of this year, ahead of a full-scale global rollout in 2012.
Nissan said production of the Leaf and batteries would entail investment of more than 420 million pounds ($643 million) in Sunderland, supported by a British government grant of 20.7 million pounds and a proposed finance package of up to 220 million euros ($302 million) from the European Investment Bank.
This investment is a fantastic vote of confidence in the Sunderland plant and its excellent workforce, UK Business Minister Peter Mandelson said in a statement.
The automotive sector is of key importance to the UK. It supports R&D, technological innovation, skills and a supply chain that's a mainstay of the wider manufacturing sector, he said.
Nissan has not yet specified how much the car will cost, saying only that it will be competitive with similar-sized cars with conventional engines, excluding the price of the batteries, which will likely be leased in most cases. It is expected to announce a price range for the Leaf at the end of this month to start taking orders from customers.
Founded in 1984, the Sunderland factory in northeast Britain employs around 4,000 people and built its 5 millionth vehicle in June 2008.
The Leaf will be manufactured on the same line as the new Juke compact crossover, which enters production in August.
The Sunderland plant is due to supply lithium-ion batteries, developed jointly by Nissan and Japan's NEC Corp, also for Renault's electric cars. Nissan is also due to produce batteries in Portugal to supply the European market.
(Additional reporting by Helen Massy-Beresford in PARIS; Editing by Hugh Lawson)