Ford and Mazda both plan to set up their own separate joint ventures with Changan, a move which will give the automakers more leeway to design their own China strategies, the sources with direct knowledge of the scheme told Reuters.

Ford is set to own half of its new two-way venture with Changan, the sources said, while the Mazda-Changan tie-up will probably also be a 50-50 JV.

"They have submitted a joint proposal to the Chinese government to split up the partnership. Ford's new JV with Changan will be based in Chongqing, while Mazda's venture will be based in Nanjing," said one of the sources, adding that it was unclear when the government was expected to make a decision.

Ford and Changan declined to comment on the issue. A Mazda China spokeswoman had told Reuters the parties were awaiting regulatory approval for a restructuring move, but declined to give further details.

Auto industry partnerships have been in focus recently, with Renault SA, Nissan Motor Co. and Daimler AG announcing a stake swap deal in the wake of an equity tie between Suzuki Motors Corp. and Volkswagen AG.

Mazda's ties with Ford have weakened since the U.S. automaker reduced its controlling one-third stake in Mazda to 13 percent in 2008 to free up cash. Ford currently owns about 11 percent of Mazda, Japan's No. 5 automaker.

Ford, which broke ground for its $490 million third China plant in September last year, owns a 35 percent stake in the venture, with Changan holding 50 percent.

Move would help Mazda most

A pullout of Mazda could actually be positive for the Japanese automaker, which has just a 15 percent stake in the venture, analysts said.

"It's a good move as a three-way tie could get complicated sometimes. The biggest beneficiary, however, would be Mazda as it could be an equal partner in the new tie," said Chen Liang, an analyst with Huatai Securities.

China, which eclipsed the United States as the world's top auto market last year, has been a major bright spot amid a global industry downturn and a safe heaven for foreign auto giants.

Car sales rose 63.6 percent to 4.63 million units in the first four months, with annual growth estimated to rise up to 20 percent.

Mazda started making the Mazda6 mid-sized sedan in China in March 2003 through a technical cooperation pact with FAW Group, China's No. 2 automaker.

It joined Ford's car making venture with Changan three years later, which now makes the Mazda2 subcompact and Mazda3 compact as well as Ford's Focus, Fiesta, Mondeo, S-MAX and Volvo's S40 and S80.

The termination of the Changan-Ford-Mazda partnership is unrelated to Ford's plans to sell its Volvo car unit to China's Zhejiang Geely Holding Group Co., parent of Geely Automobile Holdings Ltd., one of sources said.

Ford signed a $1.8 billion deal to sell the Swedish premier car brand to Geely in late March and is expected to close the sale in the second quarter.