The Land and Resources Ministry said Thursday that BYD was ordered to pay 2.95 million yuan ($442,000) and forfeit the facility because most of the land for the project, in north-central China's Shaanxi province, was zoned for farm use.

Though details are unclear, the dispute reflects the intense competition for land use in this country of 1.3 billion, which is struggling to maintain grain output amid rapid and often laxly controlled industrialization.

BYD was planning a factory with a capacity of 200,000 vehicles a year, near the city of Xi'an, after local officials agreed to let the company build on the 29-hectare (72-acre) site. It began construction late last year and has erected seven dormitories, workshops and other buildings, the ministry said in a notice on its website.

The notice also said a number of local officials were penalized, though it did not say how, for having violated land use rules by agreeing to the deal with BYD.

BYD, whose headquarters and main factory is in the southern city of Shenzhen, said it does not expect any adverse impact from the setback. The project's future remains unclear.

"We will obey the penalty, but it won't affect our normal operations," said BYD spokesman Paul Lin.

BYD, which started out as a battery maker, is 10 percent owned by MidAmerican Energy Holdings, a unit of Buffett's Berkshire Hathaway Inc. The company has sought to leverage its advantage in battery making to market electric vehicles, while also ramping up output of inexpensive conventional cars. The company already has an auto factory in Xi'an.

But the once-meteoric growth in BYD's sales has slowed, perhaps making expansion of capacity a less urgent priority for the company, which has scaled back its sales forecasts for the year by 25 percent.