The programme is set to get underway after the company was awarded £4.5million [€5.25million] towards the cost from the Government's Regional Growth Fund (RGF).
Design and research into the new engine project will take place at JCB Power Systems in Foston, County Derbyshire where the company's JCB Dieselmax engine is manufactured.
The development of the new engine, which will be installed in JCB's own products and also sold to third parties, means almost 50 new advanced engineering jobs are available immediately at JCB Power Systems, with recruitment already underway.
The roles include engine design and development engineers, engine electronics and software engineers, quality technicians, manufacturing engineers, applications engineers, supplier development engineers and buyers.
When the engine goes into production, more than 300 additional jobs will be created across JCB's Staffordshire, Derbyshire and Wrexham factories between 2016 and 2021.
JCB Chief Executive Alan Blake said: "The announcement that we intend to invest £31 million developing our next generation engine is an important step in building on the success we have enjoyed so far and it will take the efficiency, productivity and environmental performance of our engines to new levels."
JCB began manufacturing its Dieselmax engine range at its Derbyshire plant in 2004. This year the company also opened a new engine production facility in India for the production of fuel-efficient engines for its Indian-built products.
JCB's own engines now power more than 70% of the company's equipment range. The same engines also powered the JCB Dieselmax car to a new world diesel landspeed record of 350.092mph on the Bonneville Salt Flats, USA in 2006.
Last year JCB announced it had made one of the biggest investments in its history to develop a clean engine for the off-highway sector, in readiness for increasingly stringent emissions legislation in both the USA and in Europe.
The move is said to have been well received by original equipment manufacturers (OEM) from around the world, with a surge in demand for the award-winning JCB Ecomax T4 engine range.
The company has recently developed the new JCB Ecomax T4 4.4 litre engine, the latest generation of the JCB Dieselmax engine.
The investment is said to have delivered an "industry-first solution" that eliminates the need for any exhaust after-treatment and delivers cost savings for customers.
