A fully electric version of the Mini is to be built in the UK, giving a huge boost to the car industry.
The firm's German owners BMW said the new model's electric drivetrain will be built at its plants in Bavaria before being integrated into the car at Cowley, near Oxford.
The car will be a variant of its three-door hatch model and will go into production in 2019.
BMW said in a statement from Munich that electrification was one of the central pillars of the group's corporate strategy.
All of its models were able to be electrified, with a full electric or plug-in hybrid drivetrain being offered in addition to a combustible engine.
Additional electrified models will be launched in the coming years and beyond 2020.
Oliver Zipse, BMW's management board member for production, said: "BMW Group Plants Dingolfing and Landshut (in Bavaria) play a leading role within our global production network as the company's global competence centre for electric mobility.
"Our adaptable production system is innovative and able to react rapidly to changing customer demand.
"If required, we can increase production of electric drivetrain motor components quickly and efficiently, in line with market developments."
BMW said it expected electric models to account for between 15-25% of sales by 2025.
The group produces electric models at 10 plants across the world.
An electric Mini is expected to be a huge seller in the UK and overseas and the news is a huge vote of confidence in the 4,500 Cowley workers.
The decision is also welcome news for the UK's automotive industry, which has been warning of rising costs if a free trade deal cannot be negotiated as part of Brexit.
Len McCluskey, general secretary of Unite, which recently agreed a deal on pensions for BMW workers to end a dispute with the company, said: "This announcement is a huge and totally deserved boost to a world-class workforce that has endured a tough few months.
"Around the world and for generations, the Mini means made in Britain. With the electric Mini being built in Cowley, the tradition continues but with the added bonus that this is one of the important innovations of tomorrow.
"It is fantastic news and is in no small part down to the tremendous skills and efficiency of BMW's UK workers and our members.
"Throughout the years, Mini workers have shown themselves to be leaders in innovation. It is only right that this tradition continues with the next generation electric Mini being built here in the UK."
Business Secretary Greg Clark said: "This landmark decision is a vote of confidence in the determination of our Industrial Strategy to make Britain the go-to place in the world for the next generation of vehicles.
"BMW's decision recognises the strength of the excellent workforce, our record of innovation and the productive relationship between the automotive sector and the Government.
"The automotive industry is a great British success story and the Mini is a big part of that. UK car production hit a 10-year high last year, with 1.7 million cars made and over 800,000 people employed across the wider industry.
"We want to see the sector continue to innovate and grow here in the UK, supported by initiatives such as the new battery institute as part of our Industrial Strategy."
BMW said it did not ask for or receive any assurances from the Government before making its decision.
A handful of new jobs might be created at Cowley, which currently produces 1,000 Minis a day.
Layla Moran, Liberal Democrat MP for Oxford West and Abingdon, said: "This is fantastic news for Oxford. It will mean more local jobs and more green cars on the road.
"I recently urged the Government to follow the recommendations of the car industry and seek an interim deal that keeps the UK in the customs union and single market.
"I hope this vote of confidence by BMW is a sign that ministers have listened."
The decision to build the car in the UK using components imported from Germany is a boost for the Government as it continues to seek a Brexit trade deal.
The car industry is among many sectors pressing the Government to deliver a trade deal with the EU that addresses the risk of border tariffs and non-tariff barriers.
BMW stressed that Tuesday's decision was made without any specific assurances from the Government about future support for the company.
Nissan decided last year to build its next Qashqai SUV at its Sunderland factory, securing thousands of jobs.
There had been concerns about the future of the car giant's plant in the North East after the UK leaves the European Union.
In March, Labour leader Jeremy Corbyn accused ministers of holding back the car industry and of being reluctant to intervene to support the automotive sector.
The industry faces a challenge from Brexit, with many manufacturers having complex supply chains which involve components travelling back and forth across EU frontiers.