A Peugeot logo is seen on a car which is displayed at PSA Peugeot Citroen headquarters in Paris April 14, 2014. [Photo/Agencies]

PSA Peugeot Citroen and partner Dongfeng Motor Group received an official green light on Wednesday to build their fourth factory in China, the French carmaker said.

Peugeot said it had signed an agreement with local authorities in Chengdu, Central China, to begin work on the plant, which will add production capacity of 300,000 vehicles a year to the partnership's three existing factories.

"With this fourth plant, the production capacity of the DPCA (joint venture) will increase to 1 million vehicles," Peugeot said. Construction will begin this year on the plant, which is scheduled to start production in 2016.

Peugeot struck a deal in February to sell matching 14.1 percent stakes to the French government and Dongfeng as part of a 3 billion euro ($4.1 billion) capital increase for the loss-making French carmaker.

The bailout also expanded the existing Peugeot-Dongfeng joint venture with a 1.5 million vehicle sales goal for 2020 - including some exports to southeast Asia.

The fourth Peugeot-Dongfeng plant will produce minivans and sport utility vehicles for Peugeot, Citroen and Dongfeng's Fengshen brand, the Paris-based carmaker said.

Peugeot sold 557,000 vehicles in China last year and is targeting at least 700,000 combined sales this year through DPCA and a second joint venture with Changan Automobile Group, which manufactures cars for its premium DS brand.

Dongfeng, Peugeot inks deal officially, capital injected	Peugeot family says to retain long-term PSA stake