US auto giant General Motors will build a $1.3 billion Cadillac plant in Shanghai after China approved the project, it said Tuesday as it seeks more luxury sales in the world's biggest car market.

Construction of the plant -- which will have annual capacity of 150,000 vehicles -- will start in June, GM said in a statement.

The factory, the first in China dedicated to making Cadillacs, will come under Shanghai GM, a joint venture with China's SAIC Motor.

"Shanghai GM has received the NDRC's (National Development and Reform Commission's) approval to build a Cadillac plant," the statement said.

The huge investment marks a bet that GM, the largest US auto maker, will be able to win a larger piece of China's rapidly-growing luxury vehicle market, in which German brands hold an estimated 80 percent share.

Analysts say GM is a laggard in the segment, one of China's fastest growing and most profitable given rising incomes in the country.

"GM needs to build a relatively high-end brand in China in order to improve its overall product line," said Jia Xinguang, managing director of industry group the China Automobile Dealers Association.

"It also sees the growth potential in China's high-end car market, so the establishment of the plant will allow it to enter the market and win a bigger share," he told AFP.

China's luxury car sector is dominated by German automakers such as Audi, BMW, Mercedes-Benz and Volkswagen though other European, Japanese and US brands are bringing greater competition, analysts say.

China's market for what the industry calls "premium" cars -- costing from $32,000 to $190,000 -- was 1.25 million vehicles last year, second only to the United States, according to consultancy McKinsey.

Premium car sales in China grew at an average 36 percent a year in the last decade, though that would slow to an annual 12 percent through 2020, McKinsey said in a report in March.

GM launched a Cadillac sedan, the XTS, in China earlier this year as it seeks to make inroads into the sector. That vehicle, priced from $56,800 to $92,500, is produced in China.

The firm plans to introduce one new Cadillac model a year through 2016 to boost annual sales of the marque from around 30,000 vehicles last year to 100,000 by 2015, a GM official said last month.

In the first four months of this year, GM sold 11,571 Cadillacs in China, according to figures previously released by the company.

"Our longer-term goal is to take Cadillac's share of the luxury car market to 10 percent by 2020," GM China president Bob Socia said.

Speaking on the sidelines of the Shanghai auto show, Socia also played down concerns of production overcapacity in China, saying GM plans to add four more plants by 2015 to meet demand.

GM has 12 joint ventures in China, producing passenger vehicles, commercial vehicles and light trucks with Chinese partners. Its total China sales for all types of vehicles rose 11.3 percent last year to a record 2.84 million units.