PSA said it chose Kaluga over Nizhny Novgorod, some 400 kilometers east of Moscow, because of logistics and its proximity to the capital's market. It gave no financial details.
"Volkswagen is also installed in the region and with two big car groups there it will be easier for parts suppliers to set up shop there as well," said a spokesman for Peugeot.
While PSA had been open to a cooperation deal over Russian manufacturing facilities with sport utility vehicle partner Mitsubishi Motors, in the end it decided to go it alone.
From 2010, the new factory will produce vehicles in the midsize segment, which represents nearly 60 percent of all sales in the country's fast expanding market, the company said in a statement.
The plant will have an initial capacity of 100,000 vehicles per year but this can be tripled. The group said it also planned to sell 100,000 Peugeot and Citro--n vehicles in Russia in 2010, with a commitment to eventually raising this number to 300,000 per year.
The signing ceremony for the project is to take place in early 2008.
The size of the plant is comparable to the that of the Trnava plant in Slovakia, PSA's most eastern plant at the moment, apart from a joint venture in China.
That plant took an investment of 350 million euros ($508 million), including costs for a new Peugeot 207 car model.
Renault earlier this month agreed to buy a 25 percent stake in carmaker AvtoVAZ.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.