Slotting below the Rover 25 in the existing product line-up, it will be sold by MG Rover's dealer networks across the UK and Europe, and will be built at the Tata Engineering factory in Pune, India.
MG Rover says there will be modifications to the Indica to make it more appealing to Rover customers in Europe, and no further details will be revealed until the car is unveiled.
Kevin Howe, chief executive of MG Rover, said: 'This new car, which will fit perfectly into our existing product portfolio, will reach a whole new customer base. We are delighted to have concluded this manufacturing agreement with Tata Engineering.
'The Pune factory has state-of-the-art facilities and a highly skilled and dedicated workforce.'
Ratan Tata, chairman of Tata engineering, said: 'We are very pleased to be manufacturing MG Rover's new small car at our plant in Pune and see this as a great endorsement of our engineering and manufacturing expertise.
'The introduction of this car will see the achievement of yet another milestone for both companies, and marks the start of what we hope will be a long and productive relationship.'
Tata is an India-based conglomerate which includes steel, communications, consumer products, chemicals, hospitality and IT as well as automotive production.
The £6 billion group comprises 80 companies and employs about 225,000 staff.
MG Rover says its relationship with China Brilliance will continue, with the Tata deal as a manufacturing and supply contract. The company says the new model will not be a replacement for the Rover 25.