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PSA Peugeot and Ford are to build two new diesel engines for passenger and commercial vehicles, it has been reported.

Ford is planning on building a 2.2 litre engine designed for commercial vehicles at its Dagenham plant, whilst PSA will produce a similar volume engine for passenger cars at its plant in Tremery, France. The manufacturers are hoping to build over 200,000 units of each engine per year.

The companies plan to invest £183 million on the project, and are keen to play up the fuel economy offered by diesel in light of high oil prices. However, they remain reluctant to move into building electric-petrol hybrids.

PSA Chairman Jean-Martin Folz told Reuters that the hybrids "do not have long-term economic prospects because they are a lot more expensive to produce with the same result."

Ford and PSA have produced diesel engines together for four years. The companies described the alliance as "one of the most successful engine development programmes in the car business today".

The news came after Ford announced it had seen a 250 per cent rise in demand for diesel cars.