Toyota Australia announced on Friday it would build a new engine plant that will inject approximately $300 million of project expenditure into the domestic economy.

"Toyota Australia will begin manufacturing a new fuel efficient and more environmentally sustainable engine for its Camry and Hybrid Camry sedans at its long established engine plant in Altona, Melbourne," the car company said in its statement.

More than 100,000 engines will be produced every year at the new engine plant, starting from the later half of 2012.

"Securing the next generation engine provides a foundation for on-going vehicle production at the Altona plant. It also provides Toyota Australia with significant opportunities to export the new engine to other Toyota manufacturing plants in ASEAN countries that produce Camry and Hybrid Camry," Toyota said.

The plant at Altona, in Melbourne's west, which will include the production of hybrid engines and four-cylinder new generation engines, is being backed by $63 million in federal government funding, and an undisclosed amount from the Victorian government.

It is believed Prime Minister Julia Gillard and federal Industry Minister Senator Kim Carr were met senior Toyota board members in Canberra yesterday to seal the deal.

According to Toyota, "The support provided by the Federal Government's Green Car Innovation Fund and the Victorian Government was a major factor in this project proceeding. A partnership between local car makers, the government and suppliers is fundamental for ensuring we evolve our industry to deal with the challenges of a carbon constrained world."

The project has been two years in the making and was almost derailed because of the global financial crisis. It will secure 3,300 existing jobs, including those of 320 engine line workers at Altona.