Assembly of the new vehicle will start in 2005 and up to 17,000 vehicles per year will be made at the Togliatti plant in Russia. It will only go on sale for the Russian market.
The announcement of the new model comes a year after the joint venture's first model, the Chevrolet Niva, rolled off assembly lines.
Since start of production on September 23, 2002, more than 17,000 Chevrolet Nivas have been produced. As of 2004, the Niva will be exported to Europe, Asia, the Middle East and Latin America.
'We can look back at a very successful first year of our joint venture with Avtovaz,' said GM Europe president Michael Burns. 'The team at the plant has worked hard at making the joint venture a success, and the result is evident.
'GM-Avtovaz JV fully embraces GM's quality process, and sales of the Chevrolet Niva have been very strong. We see a lot of market potential for a locally-built compact car in Russia, but this new project also reconfirms our confidence in the joint venture.'
Avtovaz chairman Vladimir Kadannikov, added: 'The GM-Avtovaz JV is a very important partnership for us.
'With the addition of the new model, GM-Avtovaz will become an even more important player in the Russian automotive sector.'
The GM-Avtovaz plant in Togliatti, Russia, is a joint venture between GM, Avtovaz and the European Bank of Reconstruction and Development (EBRD).
Under the terms of the agreement, GM and Avtovaz each hold a 41.6% stake in the joint venture and EBRD holds the remaining 16.8% share.