Nissan is to produce a new hatchback at its Sunderland plant, a move that could crete over 1,000 jobs, the firm said.
The company will invest £127m in the project, which is being topped up by £8.2m from the government's regional growth fund.
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The news follows Nissan's announcement in March that it would build its new compact 'Invitation' model at the site from 2013, potentially creating 2,000 jobs.
"In Europe Nissan has achieved record growth in recent years by providing innovative, customer-focused models like Qashqai and Juke that are designed, developed and produced within the region," said Nissan Chief Operating Officer Toshiyuki Shiga.
"Nissan already produces more vehicles in Europe than any other Asian manufacturer and the model announced today will bring world-class quality and leading technology to our customers at the heart of the European C-segment."
Councillor Paul Watson, leader of Sunderland City Council, called today's announcement "a proud testament to the skills and dedication of the Sunderland workforce".
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