The two groups started an engine cooperation deal in December 2004 and make a 1.6-liter gasoline engine for the Peugeot 207 and BMW's Mini Cooper and Cooper S cars.
The 1.4-liter engine will be made at a PSA plant in Douvrin, northwest France, and production is planned to reach 1 million units per year. The engines will be used by the PSA assembly line in Douvrin and shipped to Hams Hall in Britain for BMW.
Of the total production, 40 percent will be for the 1.4-liter engine, 40 percent for the 1.6-liter engine and 20 percent for a 1.4 liter direct-injection engine. A PSA spokesman was not immediately available to give financial details.