The funds will be supplied under the Grant for Business Investment scheme for both the production of the car and the new battery plant at Sunderland, alongside a proposed finance package from the European Investment Bank of up to €220 million euros (£197.3 million).

Nissan is planning annual production of up to 50,000 models of the Leaf – which is billed as the UK's first mass market electric car – as well as 60,000 batteries. This will help to safeguard and create over 550 jobs, says the Government.

Business Secretary Lord Mandelson said: 'The automotive sector is of key importance to the UK. It supports R&D, technological innovation, skills and a supply chain that's a mainstay of the wider manufacturing sector.

'Today's news from Nissan, with support from government, shows that by working together we can achieve our aim of making the UK a world-leader in ultra-low carbon vehicles.'

Andy Palmer, senior vice president responsible for Nissan's global electric vehicle strategy, said: 'The world is at the dawn of a new era in automotive transport. Nissan Leaf, which will go on sale later this year, is a five-seater hatchback that offers the same space, practicality and performance of a similar car in its class – minus the tailpipe emissions.'

Production of the Leaf will begin in Sunderland in early 2013. The model will also be produced in Oppama, Japan, later this year followed by Smyrna, Tennessee, USA in 2012.

Nissan says that the three production sites will support the sales launch of the model, which begins in late 2010 in Japan, the United States and selected European markets, ahead of global mass marketing from 2012.

The news of the UK Government's support follows the announcement earlier today that it is backing Ford with a £360 million loan guarantee. And last week it was announced that the Government is providing a €300 million loan guarantee to General Motors Europe, helping to secure the company's operations in the UK at Ellesmere Port, Luton and Millbrook and the rest of Europe.