BMW will invest £500 million in its Mini UK production facilities over the next three years.
The company also confirmed that the UK will be the production location for the next generation of Mini models.
The announcement will safeguard 5000 jobs at the Mini assembly factory in Oxford, the pressings factory in Swindon and the engine factory at Hams Hall near Birmingham.
'We have started preparing our UK plants for production of the next-generation Mini and this investment underlines that the UK will remain the heart of Mini production,' said Norbert Reithofer, chairman of the board of management of BMW AG,
'The Mini brand has made a significant contribution to BMW Group's success in markets around the world and we anticipate that this will grow further in the future.'
Prime Minister David Cameron said: 'I welcome this major investment by BMW Group in UK manufacturing. The production and export of iconic British cars like the Mini is making a real contribution to the rebalancing of the economy that this government is determined to achieve.
'The Mini plant in Oxford has been one of our great manufacturing success stories, they should be hugely proud of their achievements. They have shown once again that the UK is a major player in the global automotive industry.'
The Oxford factory will also build the Mini Coupe, on sale later this year, and the Roadster, which goes on sale in 2013.
The news follows yesterday's announcement by Nissan that the next Qashqai will be designed, engineered and built in the UK, safeguarding 6000 jobs in the UK.
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