The bulk of that investment -- 640 million euros -- will go to PSA's factory in Vigo, northern Spain, the spokesman said, confirming comments made by Chief Executive Carlos Tavares during a visit to the region on Wednesday and picked up by Spanish media.

The rest of the funds would be destined for its operations in Madrid. The company did not give any further details of the new car to be produced in Spain.

PSA employs close to 8,000 people in Spain, three quarters of whom are based in Vigo, where the company produces several vehicles including Berlingo mini-vans and two Citroen Picasso models.

PSA's investment comes after French rival Renault announced earlier in May that it would plough over 600 million euros into a new Spanish project and produce a new vehicle there too.

Spain has been without a new government since last December after an inconclusive election, and voters are set to return to the ballot box at the end of June, raising fears its economic recovery will suffer if investors are tempted to stay away during a prolonged period of uncertainty.

But growth has so far held up at a steady pace, underpinned by strong consumer spending, and some investments have continued to roll in, including in a thriving car sector that has helped Spain claw its way back from a deep recession.

(Reporting by Sarah White; Editing by Keith Weir)