Toyota's new Auris Hybrid will be built in the UK.
As a full hybrid, it will use the same powertrain as the Prius, and will be built at Toyota's factory in Burnaston, Derbyshire. The engines will be manufactured at its factory in Deeside, North Wales.
Toyota's announcement coincided with a visit by business secretary Lord Mandelson, who said: 'This is a welcome and forward-looking investment in Britain from a world-class manufacturer.
'It demonstrates that the UK's car industry is already making the low carbon transition.'
Cheaper than the Prius
The Auris will use the same 'Hybrid Synergy Drive' technology as the new Prius, with a 1.8-litre petrol engine working with an 80bhp electric motor and an engine stop-start system to provide low carbon dioxide (CO2) emissions.
The lighter Auris should improve on the Prius's 89g/km of CO2 and average fuel economy of 72.4mpg.
It's expected to be cheaper than the Prius, too, bringing the Auris Hybrid closer in price to its key rival, the Honda Insight.
The new model is due to be unveiled at the Frankfurt motor show in September. Toyota is also expected to launch a hybrid version of its RAV4 SUV during 2010.