Struggling MG Rover yesterday angered its unions by announcing plans to build a new small car for the European market at a factory in India.

The company described the agreement with Tata, the Indian engineering company, as "very astute," giving it access to a niche European market where it had no model to compete with the likes of the Ford Ka or Peugeot 106.

Tony Woodley, chief union negotiator and moving force in Rover's rescue two years ago, condemned the deal for failing to provide for simultaneous manufacture at Rover's Longbridge home, near Birmingham.

With Rover sales sagging and certain to fall below last year's 170,000 in 2002, unions fear the company could be forced to cut hundreds of jobs among the 6,500-strong Longbridge workforce before new cars to replace the 45 and 25 are introduced, in 2004 and 2005.

Mr Woodley said that, while he welcomed collaborative deals which would save Rover's costs, the agreement with Tata could be seen as eventually exporting British jobs when Longbridge was finding it tough to keep up capacity. "We didn't save the company to export jobs," he said.

Kevin Howe, MG Rover's chief executive, said: "This new car, which will fit perfectly into our existing product portfolio, will reach a whole new customer base."

The company expects it to bring more customers into its network of dealers. The new car will be derived from Tata's Indica platform but will be designed and engineered by Rover's team. The company refused to disclose any specifications about design, price or volume of sales but said the new car would be in the 1-1.2 litre class.

"We get a competitive product in an area of the market in which we don't have a presence. This will improve sales and income which will boost the company's return to profitability," a Rover spokesman said.

Rover, which lost £187m last year, expects to cut its losses to tens of millions this year and shave them further in 2003 but expects viable earnings to emerge from 2004 when the new volume cars start to go on sale.