Aero engine maker Rolls-Royce announced yesterday that it is to build a new £85m factory in Scotland, safeguarding about 1,000 jobs.

Scottish ministers hailed as a "hugely significant" coup the decision to build a plant in the west of Scotland to replace its ageing site in Hillington, near Glasgow.

There had been speculation that Rolls-Royce would build the replacement plant abroad, possibly in the Czech Republic. The decision to stay in Scotland appears to have been swung by a £15m development grant from the Scottish executive.

Rolls-Royce said a location for the new plant would be selected from a shortlist in May and construction would begin in the summer. Transfer of work from Hillington is due to begin in 2003.

Royan Anthony, managing director of Rolls-Royce Compressor Systems, said: "This £85m project is a demonstration of the company's commitment to Scotland and a tribute to the skills, experience and commitment of our workforce at Hillington."

Last November, Rolls-Royce announced 400 redundancies at Hillington. Production has fallen there by 30% since the downturn in the aviation industry that followed the September 11 attacks.

The enterprise minister, Wendy Alexander, said the support for Rolls-Royce was in line with the executive's recent decision to focus aid on home-grown companies rather than on inward investment.

The Hillington plant was built in 10 months during 1939 to make engine parts for the Lancaster bomber and Spitfire.