The move by Kia, an affiliate of the country's top car firm Hyundai, is also part of a strategic drive aimed at grabbing a bigger share of the US market, the world's largest auto market.
Analysts have said overseas production is crucial for Kia as a rising won undercuts profits earned abroad. Kia sells about three quarters of its cars overseas.
"It will definitely be positive for earnings," said Suh Sung-moon, an analyst at Korea Investment and Securities. "The main reasons for the move are likely to be to guard themselves against foreign exchange risks, and Kia also wants to reduce trade friction with the US government."
The United States and South Korea are in preliminary talks for a free trade agreement and exports of South Korean cars are likely to be a contentious area. As of last month, Kia had a 1.6% share of the US market .
"We need to expand more in the global market in order to escape foreign exchange risks," Choi Soon-chul, executive vice president of corporate planning, said at a signing ceremony.
The won has risen 3.2% against the dollar so far this year, and gained 2.7% last year.
Asia's auto heavyweights including Toyota Motor Corp. and Nissan Motor Co. Ltd. have made serious inroads into the US, taking market share from struggling local icons General Motors Corp. and Ford Motor Co., both of which are shedding tens of thousands of jobs.
Both Toyota and Nissan have US manufacturing plants.
Europe and China
Kia aims to more than double its market share to about 4% in North America, including the United States and Canada, by selling 800,000 units in 2010, Choi said. It expects to sell 350 vehicles in North America this year, 15% up on last year.
Kia expects the new plant, which will begin production in 2009, to produce up to 300 000 vehicles a year and employ about 2 500 workers.
"You will find a very engaging workforce, and we're looking forward to producing products for the Kia brand," Georgia Governor Sonny Perdue told reporters at the ceremony.
Kia's Choi said Georgia would provide an incentive package worth $410 million, including land and utilities for the factory, located in West Point, Troup County, on the western edge of the state.
The plant is about 134 km from Hyundai's plant in neighbouring Alabama.
Kia is also expanding production to Europe where it is set to open a plant in Slovakia this year to produce 200 000 mid-sized cars a year by 2008, rising to 300 000 in 2009. It is also building a second plant in China.
Hyundai and Kia, which together aim to be the world's fifth-largest car maker by 2010, are looking to make 3.09 million units abroad by 2011, and 3 million at home, a spokesman for Hyundai said.
Hyundai opened its first US plant last year and has factories in China, India and Turkey. It is also close to a deal to set up a 1 billion euro ($1.19 billion) car plant in the Czech Republic and is in talks with China's Guangzhou Auto Group on a commercial vehicle joint venture.