BMW Group and PSA Peugeot Citroën have signed a letter of intent to consider extending co-operation on petrol engines which sources say will be around two-litres in size.

In a joint statement, the two automakers on Monday said they had "agreed to extend their successful cooperation in the field of petrol four-cylinder engines. They will jointly conduct a feasibility study concerning a new family of engines with advanced technology features aimed at delivering excellent power and torque characteristics combined with reduced fuel consumption and CO2-emissions.

"If the study confirms the expected technological, industrial and financial benefits the two companies intend to enter into a joint development project."

A BMW spokesman in Germany declined to provide any more details but sources close to PSA Group said suggestions the engine family would be larger, around two-litres in capacity, four cylinders and not destined for the Mini would not be wide of the mark.

The sources also said a more detailed announcement was expected early in 2007 as such early deliberations typically take about three months.

This extension upwards is significant, as BMW is famed for its innovative engine technology and it now seems certain it will be sharing the smaller petrol engines for its core BMW range with PSA.

BMW's current I4 petrol engine line is made at Hams Hall near Birmigham in England, home also to some of the engines developed under the current PSA-BMW co-operation agreement that recently developed a family of 75-175hp 1.6-litre petrol engines for the redesigned Mini plus Peugeot and Citroën vehicles.

In this case the two companies produce the engines separately. Peugeot produces its needs - for models such as the Peugeot 207 - at Francaise de Mecanique in Douvrin near Lille, France, while BMW prefers its UK plant, mainly because its versions of the engines are destined exclusively for the Mini, built down the road in Oxford.

BMW originally set up Tritec Motors in Brazil, a joint venture with DaimlerChrysler, to produce small engines for the Mini. It no longer sources any engines from there, having switched production to Hams Hall.

The larger BMW I4 engines made in the UK have such technology as Valvetronic which replaces the traditional throttle butterfly with electronic variable valve timing and opening to control engine speed.

Graeme Roberts and Sue Brown