Jaguar Land Rover is to manufacture cars outside the United Kingdom for the first time.
The company has entered into a joint venture with one of China's largest car makers Chery.
The two firms began work to build a factory near Shanghai today.
"For the first time one of the most famous names in the British automotive industry, Jaguar Land Rover, is poised to begin manufacturing in a market outside the United Kingdom," the company's CEO Dr Ralf Speth said at the stone-laying ceremony.
"It seems only fitting that this new venture will take place here, in the People's Republic of China, the world's fastest-growing market for premium vehicles."
Kay Francis, the company's director of global corporate communications, told Sky News: "This is our first ever manufacture plant outside the UK.
"The facility here in China will include research and development, engine plants and production lines. Start to finish, the cars will be made in China," Ms Francis added.
Executives at Jaguar Land Rover have been in complicated negotiations with their counterparts at Chery for months.
Chery is a state-owned company and Chinese government approval was required before any deal could be signed.
The joint venture project was approved by China's National Development and Reform Commission last month.
The first bricks of the new factory were laid at a ceremony in Changshu, Jiangsu Province, to the northwest of Shanghai.
Yin Tongyao, the president of Chery Automobile, and Dr Speth were both there.
"Soon, on this very site, will be a fully-fledged manufacturing plant, to create employment, stimulate the supply chain and develop game-changing environmental technologies for China. A total of 10.9bn renmimbi (£1bn) will be invested in this joint venture," Dr Speth said.
"In our shared vision with Chery, this partnership will offer Chinese customers the latest generation models from Jaguar and Land Rover, as well as vehicles designed specifically for Chinese customers," he said.
The company hopes that the first cars will roll off the production line in 2014.
It is understood the first vehicle to be built at the factory will be the Land Rover Freelander.
The company would not confirm that suggestion.
"We intend to build Jaguar and Land Rover branded products here... It's likely that a Land Rover badged vehicle will be the first to come out of the plant when it opens in 2014," Ms Francis said.
China has become Jaguar Land Rover's largest market and experts say it has not even begun to reach its potential.
Sales of the company's cars reached 53,000 there in the first nine months of this year - that's up 80 per cent from the year before.
The reason behind the boost is China's demand for luxury goods.
Jaguar Land Rover has sold 20,000 Range Rover Evoques this year alone.
The firm hopes to boost last year's record £1.5bn profits when the new Chinese factory begins work.
Building cars in China rather than importing them from the UK allows the company to avoid massive import duties.
Chinese-made vehicles can be sold for less and the hope is that more will be bought.
The company insists the expansion to China is in addition to their business in the UK and that no UK jobs will be lost as a result.
"Everything we do in China is in addition to our UK operation. We are not shifting production and it doesn't impact the head count and state of play of the plants in Britain," Ms Francis said.
Jaguar Land Rover does have a factory in Pune, India, but that acts simply as an assembly plant, constructing flat-packed cars which are manufactured in the UK.
Compared with other European car makers, Jaguar Land Rover is very late in expanding production to China.
Ageing Volkswagens are a common sight in Beijing; a sign of just how long the company has been operating here.
Jaguar Land Rover says that as well as building cars identical to those built in the UK, it plans to build a new vehicle designed specifically for the Chinese market.
"We may also build a brand of car that is a blend of the two: a car that is new and designed and developed entirely in China," Ms Francis said.
"Having Chinese research and development means we can tailor cars for Chinese tastes."
British brands are very popular in China. Combine that with the fact that China has an increasingly wealthy urban population and there are significant opportunities which could help strengthen the UK economy.