Internal combustion engines are the main power source for automobile vehicles. As current emission regulations becomes more stringent, more fuel efficient and less polluting engines are becoming the focus of car manufacturers. This paper presents the study of improving the performance of K3-VE I4 internal combustion engine that is used in the Perodua Myvi for the Perodua Eco-Challenge 2013. The strategy was to use an EGR system to reduce Brake Specific Fuel Consumption (BSFC) while maintaining or increasing the engine power. The effects of different location of EGR on the engine performance were tested on a chassis dynamometer. The sensitivity of the engine performance and gas emission were studied since EGR implementation plays a major role in influencing NOx emission. The performance parameter such as engine power and BSFC were then analysed. The result shows that a significant increase of power can be achieved and a reduction of around 56% was obtained on the BSFC. While the best NOx reduction was around 93%. These improvements are obtained at low RPM that corresponds to Perodua Eco-Challenge’s objective.