Cars sales surged 23 percent year-on-year in July in China, the world's biggest auto market, on sales of smaller passenger cars, an industry group said on Friday.

A total of 1.85 million vehicles were sold in the country last month, the China Association of Automobile Manufacturers (CAAM) said in a statement.

Growth in auto sales has accelerated for the three consecutive months as the country's economy shows signs of stabilising.

The July growth rate was higher than the 14.6 percent gain recorded in June, though total sales were lower than the 2.07 million for the month.

Sales of passenger cars with engines smaller than 1.6 litres jumped 38.6 percent year-on-year to 1.14 million in July, CAAM data showed. The government slashed the purchase tax on passenger cars with small engines last October.

China's car sales increased at their slowest rate in three years in 2015, rising less than five percent annually to 24.6 million units as the world's second-largest economy lost momentum.

China's economy expanded 6.7 percent in the second quarter of this year, the same as the previous three months but down from 6.9 percent for all of 2015.