Way back in October last year we touched on the rumour that the world’s number one manufacturer was looking at selling the first-gen Prius alongside the 2009 Toyota Prius.

That rumour has gained momentum this week, but with a twist: there are fresh reports that Toyota will look to sell a cheaper hybrid model alongside the new generation Prius.

The aim here is to take the fight directly to the 2009 Honda Insight hybrid, which undercuts the Prius by a few thousand dollars, but is smaller in size.

Honda’s Japan dealers sold some 18,000 Insight hybrids in its first month on sale, demonstrating that there is clearly demand for a cheaper alternative to the Prius.

It’s uncertain if the cheaper hybrid model from Toyota will be a less feature-rich version of the Prius, or another model all-together.

The new hybrid is expected to use the Prius drivetrain, albeit with a smaller petrol engine which, with other feature ‘deletions’, should see costs drop by 20-30 percent.

Many expect that Toyota will sell the new and old generation Prius side-by-side; if so, the hybrid in question will be an entirely new model. Time will tell.

After working so hard to become the undisputed king of hybrid vehicles, Toyota is not likely to sit back and let challengers make inroads into the market without responding.

We’ll bring you more information as it comes to light.

GALLERY » 2010-prius

GALLERY » 2009 MIMS - HONDA INSIGHT