More than 1,600 jobs will be created in Sunderland and an estimated 4,500 in supply companies under an investment of £1 billion, including building a new-generation all-electric vehicle.
The news was warmly welcomed by the Government, the industry and unions representing workers in Sunderland, where Nissan has been building cars for 35 years.
Nissan chief operating officer Ashwani Gupta would not say how much financial backing the UK Government has given the project.
Business Secretary Kwasi Kwarteng suggested that a significant sum of financial support from the Government has been committed to Nissan but declined to give a figure.
The carmaker will partner with Envision AESC, a global company in battery technology, and Sunderland City Council.
There will be three interconnected initiatives bringing together electric vehicles, renewable energy and battery production, which Nissan said sets a blueprint for the future of the automotive industry.
The new model will be a cross-over vehicle, but Nissan said it was too early to say when production will start.
Mr Gupta said this month was the 35th anniversary of the plant building its first car, adding: “This is a £1 billion birthday present for all of my colleagues here.”
Ed Miliband, shadow business secretary, said: “Labour called for more gigafactories, and we warmly welcome this announcement from Nissan.“
Steve Turner, assistant general secretary of Unite, said: “Nissan and this incredible workforce were determined that Sunderland should lead the pack as we transition to electric vehicles and today they have delivered.
“They have battled for years to convince the Government to support and invest in UK battery manufacturing, and today’s very welcome announcement will bring much-needed job security to the plant and thousands of new skilled jobs to the region.”
Mr Kwarteng said: “This fantastic investment by Nissan and Envision AESC represents a solemn commitment to the people of Sunderland, bringing further high-skilled jobs and turbocharging our plans to level up the North East.
“This is a huge step forward in our ambition to put the UK at the front of the global electric vehicle race, and further proof, if any was needed, that the UK remains one of the most competitive locations in the world for automotive manufacturing.
“I am extremely proud that Nissan has not only reaffirmed its belief in Britain, but is doubling down on its long-standing commitment to our country.
“The cars made in this plant, using batteries made just down the road at the UK’s first at-scale gigafactory, will have a huge role to play as we transition away from petrol and diesel cars and kick-start a domestic electric vehicle manufacturing base.”