Hangzhou-based Leapmotor only produces electric vehicles and is relatively unknown in Europe, despite selling 10,000 cars a month in China, while Stellantis is one of the world's largest carmakers, owning popular brands including Alfa Romeo and Jeep.
Under the deal, the Netherlands-based firm will spend 1.5 billion euros ($1.6 billion) on the stake in Leapmotor.
The two firms will also establish a Stellantis-led joint venture, Leapmotor International, which will hold "exclusive rights for the export and sale, as well as manufacturing, of Leapmotor products outside Greater China", Stellantis said.
"As consolidation unfolds among the capable electric vehicles start-ups in China, it becomes increasingly apparent that a handful of efficient and agile new generation EV players, like Leapmotor, will come to dominate the mainstream segments in China," Stellantis CEO Carlos Tavares said in a statement.
"It's the perfect time to take a leading role in supporting the global expansion plans of Leapmotor, one of the most impressive new EV players who has a similar tech-first, entrepreneurial mindset to ours," he said.
With 200 vehicles on French roads since last spring, Leapmotor is seeking to clear regulatory hurdles from the European Union in order to deploy more widely in France -- its first target market in Europe.
The start-up offers a compact model, the T03, priced at 26,000 euros -- aimed at meeting market demand for entry-level electric cars.
Leapmotor told AFP in September that it was ready to ally with a European group, though it did not confirm rumours about a potential alliance with Stellantis.
The company's CEO, Zhu Jiangming, hailed the partnership with Stellantis as a "great milestone" in the firm's history.
Stellantis already has a presence in China, via a tie-up with the Chinese group Dongfeng Motor to sell its Peugeot and Citroen cars in the world's second-largest economy.
But it has struggled to gain a foothold, announcing last week that it would sell the three factories owned by that joint venture to Dongfeng Motor in line with a "strategy of reducing our assets in China".
And a joint venture with Guangzhou Automobile Group filed for bankruptcy last year.
Other European manufacturers have also stepped up partnerships with Chinese companies to win over local customers.
In July, German car giant Volkswagen announced it would invest more than 600 million euros in Chinese electric vehicle manufacturer XPeng.
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