Volvo CE said the lab will be the company's first dedicated to fuel cells, and the first to test complete complete engine units.
The lab, which will be based at Volvo CE's technical centre in Eskilstuna, Sweden, will form an important part of the Volvo group's overall ambition to be 100 percent fossil free by 2040, said the press statement.
However, it also noted that hydrogen fuel cell technology will play a role "together with battery electric solutions, as demonstrated by the electric compact machines, and more sustainable internal combustion engine offerings".
Toni Hagelberg, head of sustainable power at Volvo CE, said: "Fuel cell technology is a key enabler of sustainable solutions for heavier construction machines, and this investment provides us with another vital tool in our work to reach Science-Based Targets.
"Not only will the research and development carried out at the test lab be dedicated to producing fossil-free construction solutions, we will also look at how the hydrogen itself has been produced, and strive for so called "green" hydrogen produced from renewable energy."