The sale, which surprised the City, brings debts at the chemicals to Duluxe paints group down to less than pounds 3bn. ICI is making a profit of pounds 190m on the sale, which will have a neutral impact on its earnings.
Analysts were taken aback by the sale because the auto coatings business was considered to be part of the core business of specialty chemicals and paints which ICI planned to retain. Until now, ICI has concentrated on selling off its industrial chemicals businesses.
Charles Miller Smith, promoted from chief executive to chairman last week, said: "The deal makes excellent sense from a value perspective and enables us to focus on enhancing our strong position in our core paints business."
Only two weeks ago ICI announced the pounds 1.7bn sale of three businesses to Huntsman, the privately-owned US chemicals company.
Last week Sir Ronald Hampel gave his last speech as chairman of ICI, attacking the media and shareholders for a dogmatic approach to corporate governance.
PPG, based in Pennsylvania, has been looking to expand its paints operations in Europe. Earlier this month, it agreed to buy ICI's vehicle coatings business in Germany for an undisclosed sum.
PPG last year lost a bid to buy Courtaulds to Akzo Nobel of the Netherlands.
Shares in ICI jumped 26.5p to to close at 673p. The sale is subject to regulatory approval and is expected to be completed by the middle of the year in Europe and the US.