Toyota is aiming to cut the cost of hybrid petrol-electric technology in half in the next three years as part of plans by the Japanese carmaker to launch a more cost-effective and profitable version of its highly successful Prius hybrid hatchback.

The plans are part of efforts by Toyota to put the technology into more of its vehicles and cement its position as the leading producer of hybrids, which it believes are part of the answer to demands for more environmentally friendly fuel-efficient cars.

Kazuo Okamoto, head of research and development at Toyota, said the company's third generation of its hybrid system would be half the size and weight of its current version, as well as cheaper.

"We are cutting the cost in half," he said. "We are convinced this is realistic. The new generation system will be quite a big surprise for everybody."

The move comes as rivals are racing to catch up on hybrid technology, as consumers look for more fuel-efficient cars in the US and more environmentally friendly ones in Europe.

The cost cut is particularly important as Toyota has been unable to pass the full cost of hybrid units - estimated by rivals at $3,000-$4,000 per unit more than a normal petrol car - on to consumers, hurting its profit margin.

Toyota plans to increase the sale of hybrids in Europe to meet a European Commission target for cutting carbon dioxide emissions by 2009.