The German car group is investing DM125m (pounds 43m) in new production facilities and an expansion of its dealer network in Russia.
The new plant, to be run in collaboration with the local company Avtotor, will assemble the Land Rover Defender and the BMW 5 series from knock- down kits supplied from Britain and Germany.
Production is planned to rise to 10,000 a year in the medium term, of which 1,000 to 2,000 will be Land Rovers. At present Land Rover sales in Russia run at just 100 a year.
The Russian new car market is forecast to grow by 50 per cent over the next three years from 1 million to 1.5 million by 2002, and BMW said the outlook for the 4x4 market was "extremely promising".
The new plant will be located in Kaliningrad, a city which qualifies for special excise duty exemptions under Russian law. The expansion will create 1,300 jobs, of which 1,000 will be in the enlarged dealer network that will sell the Rover range alongside BMW's.