Fiat will build cars in China from 2011 after it entered into a 50/50 partnership with Guangzhou Automobile Industry Group.
The joint venture includes the building of both cars and engines for the Chinese market. Guangzhou produces more than half a million cars in China last year and its partners include Honda and Toyota.
Fiat and Guangzhou plan to invest around 400 million euro (£350 million) to build a new factory which will initially produce 140,000 cars and 220,00 engines per year. The factory, in the Changsha region of China, is expected to open in the second half of 2011.
The first model to be built there will be the Linea saloon, with Bravo and Grande Punto models set to follow. Production could eventually reach around a quarter of a million cars per year.
Fiat first began working with Guangzhou when the Italian firm sold it the rights to the discontinued Alfa Romeo 166 in 2008.
Fiat had originally been planning to partner Chery Automobile in China but the move was cancelled, with the companies citing the financial downturn as the reason. Fiat used to build cars in China with Naijing Automotive but this ended in 2007.