Dubbed the R2, the factory-developed hatch is intended for entry level rallying.
Power comes from a race-spec version of Peugeot's naturally-aspirated 90kW 1.6 litre petrol engine, boosting power to 138kW through upgraded camshafts and inlet and exhaust modifications.
The engine has been toughened for racing through the use of competition grade pistons and connecting rods.
The standard H-pattern manual is replaced by a five-speed sequential unit, with the shifter mounted next to the steering wheel.
The suspension has been set up with Ohlins dampers, while brakes and steering have been upgraded.
The racing 208 R2 also does away with the regular car's electric power steering, switching to hydraulic assistance.
The interior has been stripped of unnecessary equipment, and a FIA approved roll cage and Sparco racing seats have been fitted.
Underneath, the chassis and driveline are protected by full-length steel sheeting.
Despite these modifications, weight has been kept at just 1029kg and weight distribution is 64/36 percent front to rear – impressive for a FWD hatch.
The R2 will make its public debut as the ‘zero’ car at next week’s Tour de Corse Rally in Corsica.
Peugeot intends to launch two other competition versions of the 208 before the end of the year, with the next iterations being a circuit-focused racer, and also an R5-spec rally version intended for international rallies.
The R2 version will be available for purchase from November, in both gravel and tamac specifications.
Peugeot will sell the upgrades in kit form for €37,500 (AU$48,000) or fully assembled for €57,500 (AU$73,500).
The regular 208 is set for its Australian debut later this year.
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