The financial daily Mint said that the company would spend an estimated 40 billion rupees on a 121-hectare (300-acre) production facility at Sanand, where India's Tata Motors builds the world's cheapest car, the Nano.

In July, US car manufacturer Ford said it would invest $1 billion to build an assembly and engine plant in Sanand, 40 kilometres (25 miles) from the Gujarat state capital, Ahmedabad.

India's Maruti Suzuki has also been linked with a move to Sanand, as domestic and international auto makers seek to exploit the country's burgeoning car market.

Mint quoted three unnamed Gujarat state government officials and two Peugeot officials as confirming the development. A formal announcement would be made on Thursday, the newspaper added.

Nobody was immediately available for comment when contacted by AFP.

Peugeot said in a statement in February that it intended to produce a mid-sized sedan car for the Indian market. It said the location of the production site was "under evaluation".

Previous media reports have suggested that it was eyeing a location in the southern state of Andhra Pradesh and targeting an annual capacity of 100,000 vehicles.

Peugeot, which wants to sell half of its cars outside Europe by 2015, became involved in a troubled joint venture with India's Premier Automobiles in the 1990s. The tie-up was officially ended in 2005.

Copyright AFP (Agence France-Presse), 2011