But France's number one carmaker said it had built the foundations for recovery after cleaning up its balance sheet and implementing a tough restructuring plan.
Peugeot blamed the results on a previously announced 4.7 billion euro asset writedown last year and the crisis in the European car market.
The loss, announced on Wednesday, compared with a profit of 588 million euros in 2011, while revenue for the year fell 5.2 percent to 55.4 billion euros.
The results "reflect the deterioration of the automative industry environment in Europe," chief executive officer Philippe Varin said in a statement. But he added: "The foundations for our rebound have been laid."
The results were worse than forecast by analysts and overshadowed the previous record loss of 1.2 billion in 2009. Net debt stood at three billion euros, the company said.
On Monday, the European Commission authorised France temporarily to shore up Peugeot to the tune of a six-month 1.2 billion euro guarantee.
PSA Peugeot Citroen, which has a strategic tie-up with General Motors (GM) of the United States, is in the midst of a restructuring involving deep job cuts.