Scheduled to enter the showrooms in 2009, the new car is to be a sports coupé with four seats and four doors. The engine will be fitted at the front and will drive the rear wheels.
The fourth model series built by the Stuttgart carmaker following the 911, the Boxster and the Cayenne will be called the Panamera.
Porsche's total investment in the new model series, including development, will be more than €1bn (£691m) and will come from the company’s own funds.
Porsche expects worldwide sales to reach at least 20,000 units a year.
Dr Wendelin Wiedeking, the president and CEO of Porsche, says: "We have indeed taken a lot of time in making this decision. But now we know one thing for sure: the Panamera is the right car for Porsche."
There are no plans for a joint venture with another carmaker, but Porsche did say they would be working more closely with selected system suppliers.
Production of the Panamera is to be in Leipzig, Germany, where Porsche already builds the Cayenne and the Carrera GT high-performance sportscar. This would require a major extension of the assembly hall, already in operation today, which would begin in 2006/2007.
Should the site be chosen for production of the Panamera it would potentially create 600 new jobs. In the course of the project approximately 400 more new jobs will be created at Porsche's original plant in Stuttgart-Zuffenhausen, where the engines for the fourth model series will be built, and at the Weissach Development Centre.
A concept drawing of the Panamera