Avtovaz will launch a new ultra-cheap Lada next year, selling for EUR5,600 (US$7,100), its French partner Renault said on Friday.

Avtovaz is reworking its best-known product line and plans the new model by the end of 2011, a spokeswoman for Renault, which holds a 25% stake in the Russian company, told AFP.

French newspaper Liberation reported that the new car would be called the Lada Granta and be similar to Renault's entry level Twingo.

To make it, Aftovaz is building a new production line which Renault has shown an interest in buying if the Granta is a success, raising the prospect of the car being sold outside Russia, Liberation reported.

Renault said the model is primarily destined for the Russian market but the firm "could consider negotiating" to sell it elsewhere.

The price tag is estimated at RUB220,000, or about EUR5,600, which would make it one of the cheapest cars in Europe. The Tata Nano is considered the world's cheapest car at around $2,500.

Another cheap model, the Logan made by Renault's Romanian subsidiary Dacia, was initially aimed at emerging markets but now sells well in western Europe, annoying some politicians who see it as hitting French Renault jobs.