Nissan's Leaf is expected to guarantee employment for hundreds
Nissan is to build its new electric car - the Leaf - at its Sunderland plant, the Japanese company has announced.
Hundreds of jobs are expected to be safeguarded once production begins in 2013 - part of a £420m investment in electric cars.
The investment is backed by a £20.7m government grant and up to £220m from the European Investment Bank.
Ministers have also backed Ford's planned £1.5bn investment in cleaner engines with £360m in loan guarantees.
'Vote of confidence'
About 50,000 Nissan Leaf hatchbacks, which run entirely on lithium-ion batteries, will roll off the Sunderland production line a year.
Lord Mandelson said the development was a "fantastic vote of confidence" in the plant and its "excellent workforce".
By Jorn Madslien, business reporter, BBC News
Nissan had already said that it would invest some 200m euros in a battery factory near its Sunderland manufacturing plant, yet it was never a given that the company would produce its Leaf electric car here too. Its investment in the region is now set to double.
The North East's efforts to gear up its electric motoring infrastructure and the UK government's recent decision to subsidise buyers of electric cars to the tune of £5,000 obviously helped the Japanese automotive giant make up its mind.
But in the end, the right to produce the car and thus secure thousands of jobs in an otherwise economically depressed region was earned by the Nissan factory's management and workers.
Trevor Mann at Nissan said the government had played "quite a significant role" in the carmaker's decision to build the Leaf in Sunderland.
"Not just in monetary terms, but also setting its stall out in terms of the infrastructure [needed to power electric cars]."
Sunderland had already been named as the site to produce Nissan's electric car batteries, creating 350 new jobs. About 60,000 batteries will be made there when production begins next month.
Lord Mandelson said: "By working together we can achieve our aim of making the UK a world-leader in ultra-low carbon vehicles."
Nissan said the Leaf hatchback would be the world's first affordable, mass-produced, zero-emission car.
Nissan senior vice president Andy Palmer said the car would go on sale later this year and the UK was the third country to produce the car after Japan and the United States.
Nissan's Sunderland plant is the UK's largest car factory, employing 4,000 people and producing about a third of the cars made in the UK.
It was founded in 1984 and built its five millionth vehicle in June 2008.
The car battery programme has already seen Nissan invest £179m there.
Last year, Nissan's chief executive Carlos Ghosn underlined his company's commitment to its electric cars programme.
"The electric car will account for 10% of the global market in 10 years," he told BBC News.
The firm has not yet revealed how much the Leaf will cost.
Ford's plans involve an investment of more than £1.5bn in six projects across four sites.
They will safeguard about 2,800 skilled jobs at its research centre in Dunton, Essex, and its factories in Dagenham, Essex, Southampton and Bridgend in South Wales.
About a quarter of all Ford engines worldwide and over half of its diesel engines are produced in the UK.
Business Secretary Lord Mandelson said: "Ford is a major investor in research and development in the UK. The government stands ready and willing to support these innovative R&D projects backed by a highly skilled workforce."