Volume production of the DaimlerChrysler subsidiary's small SUV, which is based on the Smart ForFour, starts in 2006 at the DaimlerChysler's Juiz de Fora, Brazil, plant.
The vehicle will be exported to the U.S.A from the plant, which also produces the Mercedes-Benz A and C class.
Harald Wester, director of the Magna Steyr engineering department, said the contract, which also includes other components, ensures that "a significant part of the capacity" at Magna's engineering center in Graz will be utilized.
Two other Magna branches supply body parts, such as doors and hatchbacks for the Smart ForTwo, Roadster and Roadster coupe, to Smart's assembly plant in Hambach, France.
Wester said the Graz facility will increase its work force to 9,000 employees from 7,900 due to the new contract and to meet production demands for BMW X3.