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An engine production facility as well as a research and development centre will built as part of the venture, with a main manufacturing plant expected by 2014.
The work can go ahead after the Chinese government approved a licence for the new partnership.
The company is looking to expand in the China's booming economy, with sales of Jaguars and Land Rover rising by 80 per cent in China so far this year.
The luxury car maker Jaguar Land Rover is to begin manufacturing vehicles in China for the first time.
The company will announce a "milestone" £1 billion deal with Chery Automobile Company and begin the construction of a new plant at Changshu near Shanghai.
Jaguars and Land Rovers will be built at the site along with new branded vehicles aimed at the Chinese market, the company said.