Indian automaker Mahindra & Mahindra and China's Shaanxi Automobile Group have agreed to set up a US$3bn joint venture (JV) to build a car manufacturing plant in India and are awaiting New Delhi's approval, unnamed sources told Reuters.

A majority stake in the proposed manufacturing venture would be owned by Mahindra, two sources told Reuters, and was proposed to be set up in prime minister Narendra Modi's home state of Gujarat.

In a stock exchange statement after the report was published, Mahindra said: "The article is unfounded and there is no truth in the matter."

The proposal included building an export oriented, integrated manufacture hub for assembled cars as well as engines and car batteries, the sources told the news agency.

Mahindra had sought government approval for the Chinese investment, the sources said.

India's commerce, heavy industries and foreign affairs ministries did not immediately reply to a Reuters request for comment and the Chinese company did not return calls or other forms of contact.

Reuters noted Indian government approval had been necessary for any Chinese investment into the country since 2020 when New Delhi tightened its restrictions on Chinese investment after deadly border clashes between the two neighbours.

Billions of dollars worth of investments had over the years either been delayed or canceled due to India's additional vetting processes for the likes of BYD, Great Wall Motor and SAIC's MG Motor.

A proposal worth $1 billion by BYD last year had been held by the government on security concerns, Reuters said.

However the investment proposal came at a time when India was considering relaxing restrictions on Chinese investment in non-sensitive sectors like solar panels and battery manufacturing where it lacks expertise.

India's top government officials had lately been hinting at reviewing their stance against Chinese investment as foreign investment fell to 17 year lows, Reuters said.