The new agreement will see the German automaker supply four-cylinder 1.6-litre turbocharged petrol engines from 2012. The engines will feature Start-Stop and other measures designed to reduce emissions and fuel consumption, and will be assembled at the BMW Group’s Hams Hall engine plant in the UK.

Jan Ake Jonsson, CEO of Saab Automobile, said: 'It gives me great pleasure to confirm this exciting new relationship. BMW Group’s engines and their fuel-savings innovations are widely regarded as a benchmark in the premium segment. We look forward to integrating this technology into our next-generation vehicles in a true Saab way.'

Ian Robertson, member of the Board of Management of BMW AG, said: 'We are continuing to expand our powertrain system sales business worldwide as planned as part of our Strategy Number ONE. Today’s agreement marks another important milestone along this route.

'We are delighted to support Saab with our engine expertise. Our engines have a clear lead over the competition when it comes to fuel consumption, emissions and performance,' Mr Robertson added.

No financial or volume details of the deal were disclosed.