KUALA LUMPUR, MALAYSIA - Malaysia's national carmarker Proton on Friday announced it has inked an agreement to develop a new vehicle with its former Japanese partner Mitsubishi Motors Corp.

Under the ambitious scheme, Proton, which is in need of advanced technology and auto designs in order to remain competitive, will use Mitsubishi expertise to develop a new model, it said in a statement to the stock exchange.

It said the alliance would also allow the two companies to improve component quality for Proton vehicles, and explore options for exports and contract assembly.

Mitsubishi Motors was a former Proton shareholder and helped the state-controlled firm make its first cars more than two decades ago. It sold its stake in 2004.

For Mitsubishi Motors, Japan's fourth-biggest carmaker, the deal would provide a springboard to expand its business in Malaysia, Southeast Asia's biggest passenger car market.

Proton was formed 25 years ago by former premier Mahathir Mohamad as part of an ambitious national industrialisation plan, but its market share has slumped in recent years as it flailed in a newly deregulated market.

It has also suffered from a reputation for unimaginative models and poor quality that has left it struggling to compete against Japanese and European carmakers.

The government has urged it to forge a partnership with a foreign automaker to give it the expertise and economies of scale that it needs to survive.

However, talks with Volkswagen and General Motors have collapsed, with the stumbling block reputed to be demands for a stake in Proton. The Mitsubishi deal does not include any ownership changes.