Bluestar was allowed to buy a controlling 49% stake and conduct a four-week due diligence study on Ssangyong Motors, according to Chohung Bank, a key creditor.
The deal followed a vote last week by creditors which backed Bluestar as the favoured buyer of Ssangyong, which specialises in sports utility and recreational vehicles.
The selection of Bluestar over foreign bidders, including US auto giant General Motors, highlights the increasing interest among Chinese companies to buy into South Korea's financially troubled key businesses.
"We are positive that we will sign a final contract without much difficulty as both Ssangyong Motor creditors and Bluestar are well aware that they are the most optimum partners," Bluestar's vice president Liu Xianqiu said at a ceremony in Seoul.
Bluestar had received prior approval from the Chinese government for its bid for Ssangyong, he said, adding the company would have no difficulty financing the deal because of state support.
The price and other details were not disclosed, but Yonhap news agency said earlier that Bluestar offered 11,000 won per share, or 650 billion won ($548m).
The creditors have pushed for the sale despite protests by the company's 5500-member union.
The union launched a partial strike for two days last week, insisting Ssangyong should stand on its own.
Ssangyong has been controlled by creditors since 1999 after its parent Ssangyong Group collapsed in the wake of the South Korea's 1997-1998 financial crisis.
"We are positive that we will sign a final contract without much difficulty as Ssangyong creditors and Bluestar are well aware that they are the most optimum partners"
Bluestar's vice president
Bluestar, if approved, would be the first Chinese firm to acquire a South Korean auto company and the third foreign firm to jump into the domestic auto market after GM and France's Renault SA.
The Chinese group plans to invest one billion dollars in Ssangyong and its Chinese auto-related operations, Kim said, adding creditors hope to sign a memorandum of understanding by the end of December.
It has also offered other incentives such as plans to invest more in Ssangyong's research and development and bolster its after-service network in China.
The proposal included a pledge to ensure job security and retain Ssangyong's current management, he said, adding the Chinese group was also ready to respect a labour-management agreement.
Through years of restructuring, Ssangyong has achieved
profitability and increased its domestic market share from 6.7% in 2000 to 9.8% this year.