Daimler has signed an EUR800m deal with the Hungarian government to construct a Mercedes-Benz small car plant in Kecskemét.

The deal was signed by Rainer Schmückle, chief operating officer of Mercedes-Benz Cars, and Gordon Bajnai, Hungarian minister for national development and economy.

The deal includes an investment of EUR800m and the creation of up to 2,500 jobs. The plant will manufacture over 100,000 compact cars annually beginning in 2012.

"By choosing this region, your country, the city of Kecskemét and the people there are becoming part of the history of Mercedes-Benz. And we believe in the performance of the location and the employees. Because, no matter where a Mercedes comes from, it must always meet the highest quality standards," Schmückle said.

Mercedes-Benz is building the plant in order to create additional production capacity in the compact car segment, where the model range will be expanded from two to four vehicles, Daimler said in a statement. The plant contributes to the profitability of the product portfolio extension, it said.