FCA's Europe chief, Pietro Gorlier, announced the investment at the automaker's Mirafiori plant in Fiat's home town of Turin on Thursday. The line will build 80,000 units a year of a new battery-powered 500.
"The plan is confirmed," Gorlier told reporters when asked if FCA's investment in electric-vehicle technology would remain unchanged after its $35 billion plan to merge with Renault, an electric car pioneer, collapsed last month.
Production of the newly-engineered 500 EV will start in the second quarter of 2020, with a potential to expand capacity later, Gorlier said.
The 500 is one of Fiat's most famous models. Launched in the late 1950s, it quickly became a symbol of Italian urban design.
The investment is part of a plan announced last year to invest 5 billion euros in Italy up to 2021.
The new 500 EV will be Fiat's first battery-powered car to be sold in Europe. FCA did not discuss plans for sales in other markets such as the United States and China.
An earlier electric 500 was sold in the U.S. to comply with emissions rules on zero-emission cars. In 2014, former FCA CEO Sergio Marchionne asked customers not to buy the 500e because the company was losing money on it.
The electric 500 will be sold with the current internal combustion version of the 500, which will continue to be built in Tychy, Poland.
Gorlier said Fiat hopes to reach annual sales of 80,000 for the 500 EV after a couple of years' ramp up. "A lot will depend on how quickly demand for electric vehicles develops," he said.
The 500 EV was conceived, designed and engineered in Mirafiori, Gorlier said.
FCA is reducing the Fiat brand in Europe to a few models based around an electrified 500 lineup and the Panda minicar. The two cars dominate the region's minicar segment.
The full-electric 500 will give Fiat a car that will appeal to buyers in cities where access to internal combustion cars will be restricted.
Andrea Malan contributed to this report
