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MUMBAI (Reuters) -- General Motors will sign an agreement with the western state of Maharashtra for an engine and transmission plant on Thursday, as it steps up the pace in one of the world's fastest-growing auto markets.

The unit will be located in Talegaon, where GM's second vehicle plant is scheduled to start operations next week, a spokesman said, declining to give details of the investment or the plant's capacity to make engines.

"It is an extension of the investment GM has made in Talegaon for the vehicle facility," he said.

GM is scheduled to hold a news conference on Thursday in Mumbai, where a memorandum of understanding with the state will be signed, the spokesman said.

GM, which makes the Chevrolet Tavera, Chevrolet Optra, Chevrolet Aveo and Chevrolet Spark in western Gujarat state, will have a capacity to make 140,000 vehicles in the new car plant, taking its all-India capacity to more than 225,000 units.

GM will build a new small car in the new plant as it aims to double its share of the market to 10 percent by 2010.

Annual passenger vehicle sales in India are forecast to expand to more than 2 million units by 2010, with small cars accounting for more than two-thirds of sales.

Tata Motors is scheduled to launch in October the mini Nano, billed as the world's cheapest car, while Bajaj Auto is building a similarly priced 100,000-rupee ($2,283) car with Renault and Nissan.

The Nano has been hit by protests over land acquired to build a plant for its production in West Bengal state, and Tata Motors' chairman has threatened to move his factory elsewhere if the violence continues.

GM's rival Ford Motor said in May it had started operations at its engine assembly plant in Chennai in southern India, with an eventual capacity of 250,000 units.