According to Japan’s daily Nikkei daily business paper, Toyota will not sit back and watch Honda succeed with its Insight. Nor will Toyota let Honda hold on to the claim of selling the most affordable hybrid in the U.S. for long.

A yet-unnamed sub-compact model from Toyota is scheduled to go into production and be on sale in Japan as early as 2011. The new model will use a gasoline powerplant smaller than the 1.5-liter four-cylinder in the current Prius model - one possibility being the new 1.3-liter engine found in the iQ in Europe.

Currently the Insight sells for $19,800 - or $20,470 with the destination charge included. This makes it significantly cheaper than the $22,720 Prius. The new model from Toyota would be priced below $20,510.