Abstract Background Plastid-encoded RNA polymerase (PEP) plays an essential role in chloroplast development by governing the expression of genes involved in photosynthesis. At least 12 PEP-associated proteins (PAPs), including FSD3/PAP4, regulate PEP activity and chloroplast development by modulating formation of the PEP complex. Results In this study, we identified FSD3S, a splicing variant of FSD3; the FSD3 and FSD3S transcripts encode proteins with identical N-termini, but different C-termini. Characterization of FSD3 and FSD3S proteins showed that the C-terminal region of FSD3S contains a transmembrane domain, which promotes FSD3S localization to the chloroplast membrane but not to nucleoids, in contrast to FSD3, which localizes to the chloroplast nucleoid. We also found that overexpression of FSD3S negatively affects photosynthetic activity and chloroplast development by reducing expression of genes involved in photosynthesis. In addition, FSD3S failed to complement the chloroplast developmental defects in the fsd3 mutant. Conclusion These results suggest FSD3 and FSD3S, with their distinct localization patterns, have different functions in chloroplast development, and FSD3S negatively regulates expression of PEP-dependent chloroplast genes, and development of chloroplasts.