In August 1939 in Tula region was formed the 163rd infantry division, consisting of 529th, 662nd and 759th infantry regiments and 365th artillery regiment. The division was deployed on the basis of the infantry regiment of 84th infantry division.

In September 1939 the division was concentrated at Latvia border and was included into the 47th infantry corps of the 7th army.

At the end of October – early November 1939 the division was transferred to Karelia and included into Special corps of the 8th (later – 9th) army.

From November 1939 it took part in the battles of the Winter War. In December 11th the division was encircled by Finns near Suomussalmi. During December 27-30 the formation was practically destroyed. The commanding officers of the 662nd regiment were shot as "traitors".

After the war the remnants of the division were moved to Novgorod region. In April 1940 the division had only 753 men in the list. By the middle of April the division staff was raised to 6000. In July 1940 there begun the transformation of the unit into motorised division with the dislocation at Pskov. The 25th tank regiment, formed from the remnants of the destroyed in the Winter War 34th light tanks brigade and tank regiment of the 25th cavalry division, was included into the division, replacing the disbanded 662nd infantry regiment.