Funds for the facility will come from the joint venture and it will aim to start production in early 2016, according to the source who has direct knowledge of the matter.

"The plan is subject to approval from China's central government ... Hyundai looks to break ground on the factory this year, and expedite it as the project has been delayed," said the source, who was not authorized to speak publicly about the matter.

Hyundai, Kia face fading growth

Hyundai Motor poised to add new capacity

China bright spot

The last time Hyundai or Kia announced a new factory project was in late 2011, when Kia unveiled a plan to build a third China facility. That plant will be completed early this year.

China is a bright spot for Hyundai, which has been grappling with lackluster sales in the United States and Europe.

The Asian giant was the biggest market for Hyundai and Kia last year, which saw their combined sales jump 18 percent to 1.58 million vehicles.

Those sales should rise 8 percent to 1.7 million vehicles this year as the new Kia plant comes online. Hyundai also plans to start production at a new commercial car plant in Sichuan province this year.

Global carmakers including Ford Motor Co and Volkswagen are stepping up investment in China's hinterland, where rising personal income is fuelling car sales.

In 2012, Ford announced it would invest $600 million to make more cars at its plant in Chongqing, and GM unveiled plans to build a $1 billion auto assembly plant in the city.

The focus on Chongqing comes as car markets in China's coastal cities grow increasingly crowded and vulnerable to restrictive government policies.

On Wednesday, China's eastern city of Hangzhou started restricting car sales, joining major cities including Shanghai and Beijing in the fight against pollution and traffic jams.