An Aston Martin rolling off production line.[Photo/Reuters]

London - Luxury sports car maker Aston Martin is to team up with Daimler's high-performance Mercedes-AMG GmbH division to develop a new generation of bespoke V8 engines for the British firm, it said on Thursday.

Under the deal, which is due to be finalized before the end of the year, Daimler will take a non-voting stake of up to 5 percent in the 100-year-old British firm, which achieved its greatest fame with the 1963 launch of the DB5 sports car featured in early James Bond movies.

The agreement follows completion of the sale three months ago of a 37.5 percent stake in Aston Martin to Italian private equity group Investindustrial for $241 million via a capital increase agreed by the carmaker's majority owner Investment Dar and Kuwaiti compatriot Adeem Investment Co.

Aston Martin has said the investment by Investindustrial, which outbid Indian tractor maker Mahindra and Mahindra for the stake, would underpin a new product development program worth more than 500 million pounds over the next five years.

The deals will help Aston Martin, the only global luxury carmaker not attached to a larger manufacturer, to better compete with the likes of Volkswagen's Bentley and Porsche units, as well as UK rival Jaguar Land Rover, which was bought by India's Tata Motors in 2008 and has since achieved huge sales growth, especially in China.

Under the latest agreement Daimler's Mercedes-AMG company will supply engines to Aston Martin, which will also receive electronic components from Daimler's Mercedes-Benz unit, the pair said.

"The opportunity to include content from Mercedes-AMG in our next generation sports cars is, clearly, good news," Ian Minards, Aston Martin's product development director, said in a statement. "This points to a very bright future for the company as it starts its second century in business," he added.

The Mercedes deal could eventually replace Aston Martin's current engine supply agreement with Ford, which owned Aston Martin until 2007. Ford makes V8 and V12 engines for the carmaker at its plant in Cologne, Germany.

Aston Martin declined to comment on British media reports last month that it recently extended the Ford supply deal for another five years.