Indian media reports say that a state authority in India is mulling legal action against Volkswagen after the company announced that it will set up its Indian plant in Pune, allegedly breaking an agreement to locate elsewhere.

The Andhra Pradesh government is threatening legal action against Volkswagen for breach of contract.

"We will look into various options, including proceeding against Volkswagen for breach of promise and agreement," Andhra Pradesh chief minister YS Rajasekhar Reddy said when asked about the company's move.

He said Volkawagen's decision was disappointing but "we are left with no option except legal recourse".

Volkswagen had earlier decided to set up its India plant in Visakhapatnam. The project got embroiled in a controversy over corruption allegations involving the then major industries minister B Satyanarayana and the company's Indian agent.

Reports say that following this, the state government ordered a probe into the allegations and assured the German carmaker all the necessary help in setting up the plant.

Volkswagen has, however, decided to move to Pune in Maharasthra. Satyanarayana was stripped of his portfolio following the allegations.