The bulk of the money would come from the British government, though Rover is also talking to officials at the European Commission about getting regional aid from Brussels.
If built in the UK, the new plant is likely to be located near Rover's existing facilities in the Midlands and would qualify for aid under the government's regeneration schemes.
However, Rover's neighbour, Jaguar, ran into problems with the EC, which is investigating the legitimacy of some of the pounds 80m given by the Government towards building a pounds 400m manufacturing site in Birmingham. Executives at rival companies predicted at the time that the Jaguar aid would open the floodgates.
Now BMW says that unless it gets substantial assistance it will build the plant in Germany or Austria. Both the German and Austrian governments are offering aid.
The engine plant, which may involve investment of pounds 300m-pounds 400m and give a significant boost to employment, would build two-litre engines for a new mid-range Rover, but would also export to BMW's German assembly plants.
Rover, which hopes that BMW will make a decision before the end of the year, believes the Department of Trade and Industry is keen to provide the money.
The investment would be another vote of confidence in the UK motor industry, following a number of recent announcements by car companies that they intend to expand operations. This week Ford said it was investing pounds 340m to double capacity at its engine plant at Bridgend, South Wales. The company received pounds 10m in aid.
Yesterday Richard Parham, managing director of Peugeot UK, said he was extremely hopeful that the company's Coventry plant would be chosen to build the new 206 series, successor to the 205.
The plant currently produces only the 304, and has seen output rates rise from 1,600 to 2,250 cars a week since July 1994, with a 10 per cent cut in manpower. Peugeot's French parent believes that these productivity improvements should be rewarded with a new model.
Also yesterday, General Motors said it may decide within the next 12 months whether to begin production of the Corsa at Vauxhall. Charlie Golden, Vauxhall's chief, said: "It is the only major car that we sell in the UK market but do not produce."
Both Peugeot and Vauxhall strongly hinted that they would also apply for government aid.