Malaysian car company Naza Automotive Manufacturing plans to invest $US259m in a car making plant in southern India to take advantage of the small car boom in the country, a newspaper report said on Thursday.

The firm will soon sign an initial agreement with the state government of Tamil Nadu to set up the plant and may roll out its small car by late 2007, The Times of India newspaper said quoting unidentified sources, according to Reuters.

The report said the plant will be located at Sriperumbudur, where Hyundai and Ford are already present.

"The venture might also become the entry point for South Kia-badged vehicles in India," the newspaper said.

As reported in a recent just-auto feature on Naza, the automaker builds Kia and Peugeot models branded as its own.

The report said the Malaysian firm was also eyeing India's growing motorcycle market.

Reuters noted that India's passenger car vehicle market is forecast to nearly double to 2m units by 2010 and the small car segment accounting for more than two-thirds of sales, is now dominated by Suzuki Indian unit Maruti Udyog and Hyundai, [both of whom use the country as export 'hubs'].