Although a 175bhp GTi model will go on sale this spring, a 210bhp version is on the cards for summer next year.
BMW will launch the 210bhp Mini John Cooper Works model in late 2007 and Peugeot is likely to take up the option of using this engine for the 207.
The agreement has already resulted in a 150bhp unit for the Mini Cooper and 207 GT and a turbocharged 175bhp powerplant for the Mini Cooper S and 207 GTi.
Peugeot dealers will, however, be unable to profit from retro-fit kits in the same way that Mini dealers have in the past.
A Peugeot spokesman said: “The 210bhp conversion will be a factory produced engine and not a dealer-fitted kit like the original JCW kit for the Mini. This I understand is the same for Mini. The decision to take the engine will only be made once it has been launched by BMW in the Mini.”