"This engine would power the New Generation Scorpio as well as the New Age XUV500. It would be available for customers within the Delhi and NCR Region to begin with," the company said in a statement.
Mahindra & Mahindra President and Chief Executive, Auto Division Pravin Shah said: "This new engine, the development of which started in August 2014, is now ready for launch on both the New Generation Scorpio and the New Age XUV500."
The new 1.99 litre engine will power the new generation Scorpio and will deliver 120 HP while for the new XUV500, it will deliver 140 HP, the company said.
Last month, Supreme Court had banned registration of new SUVs and cars powered by diesel engines of 2,000cc and above in the Capital and NCR till March 31 in the wake of rising pollution.
Mahindra & Mahindra is among the vehicle manufacturers, which was hit hard by the ban as the Delhi-NCR region accounted for around 2 per cent of its total utility vehicle sales.