According to a Sky News report, the company will make a decision later this year on whether to go ahead with the 400 million pound project at its factory at Halewood on Merseyside.
The car will be based on Land Rover's LRX Concept vehicle. Shown at the Detroit Show last year, the car would be the smallest, lightest and most efficient the company has ever produced.
Around 2,000 workers are employed at Halewood. The plant produces the Land Rover Freelander 2 and Jaguar X-Type.
The Government said the aid would be taken from the Grant for Business Investment scheme, which is separate from the 2.3 billion pound Automotive Assistance
Programme being discussed at a Government seminar for manufacturers and supply chain companies.