PSA already has a tie-up with Naza Automotive Manufacturing at its factory in Gurun, in the northern state of Kedah, with the plant producing several of the French group's cars for sale in the region.
By acquiring a majority stake in the plant, which has an annual production capacity of 50,000 vehicles, PSA is making Malaysia its manufacturing hub for Southeast Asia.
Naza will distribute Peugeot and Citroën cars, as well PSA's high-end brand DS, in Malaysia and will explore the possibility of distributing PSA models in other Southeast Asian markets, the groups said in a statement.
They did not disclose the value of the deal, which was signed Monday in Kuala Lumpur in a ceremony witnessed by Malaysian Prime Minister Najib Razak. PSA did not reveal the exact size of the stake that had been acquired, saying only it was more than 50 percent.
Southeast Asia is a 10-country region of more than 600 million people with a booming middle class and global automakers are racing to increase their presence in the market.
While PSA's global sales rose more than 15 percent last year, they plunged in Southeast Asia.
PSA chief executive Carlos Tavares hailed the deal as "a significant leap forward for Group PSA which will lead to the development of a profitable business in the region".
PSA had previously expressed an interest in taking a stake in local car brand Proton after it announced it was seeking an overseas partner but in the end Chinese auto giant Geely won a large stake in the Malaysian firm.
Proton and another local marque Perodua had long been dominant players in the Malaysian car market but have suffered in recent years because of tough competition from Japanese, South Korean and European models.
- with AFP