The multi-billion-dollar arrangement, one of 13 deals signed during a visit by French President Jacques Chirac to Beijing, was accompanied by an option for China to buy 20 of Airbus' new wide-body A350 planes.
The Airbus A320 assembly plant, to be located in the north Chinese port city of Tianjin not far from Beijing, will complete its first aircraft in 2009 and will subsequently manufacture four a month, the aircraft maker said.
"It's a means for us to develop a long-term vision with the Chinese," Louis Gallois, the chief executive of the European aerospace giant, told reporters.
"It's clear that building the planes in China will give the Chinese an incentive to buy more of our aircraft," he added.
No figures were immediately available about the value of the 150-plane deal although Airbus has said the average list price for one A320 was between $50.5 million and $78 million. It follows China's order last year of another 150 Airbus planes, also with a list price of nearly 10 billion dollars, which was also signed when Chinese Premier Wen Jiabao visited France.
Airbus has previously published estimates that potential sales among all airlines in China over the next 20 years will total around 1,600 planes.
The deal represents a boost for Airbus at a time when the company is struggling over management changes, cost cuts and delays to its A380 super-jumbo jet.
French President Chirac is on his fourth visit to China since taking office in 1995 and is regarded as an old friend by the Chinese leadership.
The European company is seeking to undercut US rival Boeing, which has about two thirds of the lucrative Chinese civil aviation sector, and says it is aiming for a 50-percent market share.
Analysts said Thursday's developments could be significant in helping Airbus achieve its goal.
"Sino-Europe relations are becoming ever more intimate and there is also more generosity when it comes to technology transfer," said Li Lei, an aviation analyst with CITIC Securities. "This is definitely a challenge for Boeing."
Ian Thomas, a consultant at the Centre for Asia Pacific Aviation in Australia, said Thursday's Airbus deal "reflects the increasing growth and focus of the China domestic market.
"It also reflects the development of more short-haul services within that market. The A320 is specifically geared towards that area," he said.
The A320, a medium-range, single-aisle twin-engine jet capable of carrying up to about 180 passengers, remains the European company's most popular aircraft after 17 years on the market.
It is in direct competition with Boeing's 737 model and targets the same fast-growing segment of Chinese aviation.
The Airbus order comes as Boeing is having other problems. On Wednesday, the company announced its quarterly profits dived 31 percent as it pulled the plug on its in-flight Internet service.
The Chicago-based group, which also produces defense and space equipment, said its third-quarter net profits declined to $694 million, compared with $1 billion in the same period of 2005.
In June, China's National Development and Reform Commission, the national planning agency, approved the plans for a plant in Tianjin, calling the move an important step for the nation's aviation industry.
China has repeatedly stated its ambition of building large passenger jets by 2020 although it is still struggling to develop a market for domestically built jets of 70 to 90 seats.
Airbus will hold a 51 percent stake in the Tianjin facility, according to sources close to the negotiations between Airbus and China.
In another deal signed Thursday, Alstom SA of France inked a contract worth 1.2 billion euros ($1.5 billion) for the delivery of 500 freight locomotives to China, according to the agreement seen by an AFP reporter.
Alstom will link up with China's Datong Electric Locomotive to deliver the trains, with Alstom's share of the contract coming to 300 million euros (380 million dollars), the agreement said.
New low-cost US airline Skybus has placed a firm order for 65 Airbus A319 airliners, at a catalogue price of about $3.9 billion (3.1 billion euros), Airbus said on Thursday.
Airbus, which is working on a vast restructuring plan to tackle its production problems, said that Skybus had not yet decided which engines to order for the single-aisle aircraft.
Airbus said: "In terms of aircraft, this transaction is one of the main orders placed with Airbus by an American airline."Skybus, based in the state of Ohio, is to begin flights at the beginning of 2007.