MG Rover finally confirmed on Friday that it will launch a rebadged version of the Indian Tata Indica hatchback as "new small Rover car in 2003". The car is expected to be badged as the Rover 15.

In a statement, MG Rover described its new entry-level supermini as "based on the Tata Indica platform", adding that it "will be manufactured to MG Rover's design and engineering standards, in India, by Tata Engineering, at its Pune factory".

MG Rover said the Tata-built car would be sold throughout the UK and Continental Europe. No specifications for the Rover version were announced but the company said: "The Indica is a well-designed car and there is little need to make major changes. However it will be modified to better suit Rover customers' needs."

The Indica hatchback has been sold, with 1.4-litre petrol and diesel engines, in its home market since 1998 but early cars were reportedly dogged by teething troubles and build quality issues.

About a year ago, Tata introduced a much-improved revised 'Mark 2' model, visually largely unchanged from its predecessor, and reportedly took the unusual step of effectively recalling some 'Mark 1' versions from their owners to update them.

Tata has exported the Indica since November last year to European markets including Italy, Malta, Portugal and Spain and is reportedly discussing further exports with Khodro in Iran and potential importers in China, France and Switzerland.

Tata has just launched an Indica saloon version in India, having earlier previewed a prototype at this year's Geneva motor show, alongside a minivan concept built on the same platform.

MG Rover said that having Tata build the 15 on its behalf in India was the most cost effective way of making the car and that workers at its Longbridge plant in the English Midlands should not be concerned because the Indian deal was simply "a manufacturing and supply contract with Tata to make a small Rover car."

"Longbridge serves an established UK and mainland European market place for MG Rover sales, and it also leads our new model development plans and is the centre of our manufacturing expertise. In fact the MG Rover business will be further strengthened, as the new small car will create incremental sales," the company statement said.

Rover has become the latest UK car maker to express concern over the high value of the pound sterling, saying: "In the current economic climate, given the strength of the pound, it would not be possible to make such a car in a profitable manner, in the UK."

Rover said there was no link between its relationships with Tata and China Brilliance Industrial Holdings, with whom it is understood to be developing one or more replacements for its larger 25 and 45 car lines. Both designs date back to Honda's alliance with Rover with the 25 based on a platform introduced in 1989.

Kevin Howe, chief executive, MG Rover said: "This new car, which will fit perfectly in to our existing product portfolio, will reach a whole new customer base. We are delighted to have concluded this manufacturing agreement with Tata Engineering. The Pune factory has state of the art facilities and a highly skilled and dedicated workforce."

Ratan Tata, chairman of Tata Engineering said: "We are very pleased to be manufacturing MG Rover's new small car at our plant in Pune and see this as a great endorsement of our engineering and manufacturing expertise. The introduction of this car will see the achievement of yet another milestone for both companies, and marks the start of what we hope will be a long and productive relationship."

Tata is a major Indian-based conglomerate with diversified interests including steel, communications, transport, food (including consumer products and Tetley-brand tea), chemicals, hospitality and IT as well as vehicle production, including heavy trucks.

The $US9 billion group consists of 80 companies with about 225,000 employees.