The Nissan Motor Co. and Daimler AG said on Sunday they would produce Mercedes-Benz gasoline engines at Nissan's Tennessee factory for fitting on Mercedes and Infiniti models, beginning in 2014.

Production capacity of the four-cylinder engines will reach 250,000 a year at full ramp-up, the companies said.

The project is the latest between Daimler and the alliance of Nissan and Renault SA , which are exploring ways to share vehicle, engine, and other technologies to save development costs and respond faster to market needs.

It also marks the first production of Mercedes-Benz engines in North America, where the German automaker is looking to build a stronger manufacturing footprint. The engines will power the luxury brand's C-Class cars built at Daimler's Alabama plant.

Nissan's plant in Decherd, Tenn., makes four-, six-, and eight-cylinder engines for U.S.-produced Nissan and Infiniti models, and it built more than 580,000 engines last year.

(Reporting by Laurence Frost and Chang-Ran Kim. Editing by Jane Merriman)