The plant, which is likely to indirectly create UK supply-chain jobs, will build a range of low-emission four-cylinder JLR petrol and diesel engines.
The government said it is proving the project up to £10m via its ‘Grant for Business Investment’ scheme.
The proposed location of the new engine plant — dubbed the i54 site — will be part of one of the new Enterprise Zones established to increase local growth and attract new businesses.
Colin Brown, director of engineering at the Institution of Mechanical Engineers, said: ‘The UK is often viewed as a country that no longer makes things, but as this announcement by Jaguar Land Rover shows, the UK’s expertise in high-technology manufacturing means it can still be an attractive place to invest.
‘Manufacturing is key to re-energising the UK’s economy, and government and industry must work together to encourage more companies, such as Jaguar Land Rover, to invest in the UK.’
Len McCluskey, general secretary of union Unite, said: ‘Local and central governments past and present have had a hand in this good news and that is to be commended.
‘We now urge the government to build from this and do the right thing by the workers at Bombardier, where 10,000 jobs hang by a thread yet the government has the power to turn this around.’