TOKYO (Reuters) - Toyota Motor Corp. will slash the price and size of its hybrid system by around half for the next-generation Prius model, and use a nickel-metal hydride battery instead of lithium-ion, a top executive said.

"When we went from the first-generation Prius to the second-generation, we did the same thing," Executive Vice President Kazuo Okamoto, in charge of Toyota's research and development, told reporters in Tokyo earlier today.

Toyota, the world's biggest automaker, has not publicly disclosed a timeframe for the introduction of the third-generation Prius model. Some media reports have speculated the planned late-2008 launch would be delayed because of concerns over the safety of lithium-ion batteries.

"I can't tell you when it will come to market, but the preparations are making steady progress," Okamoto said. He added that the next Prius would "definitely" use improved nickel-hydride batteries rather than higher-energy lithium-ion.

"Lithium-ion is going to take some time," he said.

Toyota, which pioneered the gasoline-electric hybrid powertrain with the Prius in 1997, has set a goal of selling 1 million hybrid vehicles annually soon after 2010. It hopes to eventually make the system available across its vehicle line-up.

The Prius, an easily recognizable hybrid-only car, has helped Toyota cultivate an image as a maker of fuel-efficient cars, also driving sales of its mainstay cars such as the petrol-engine Camry sedan and RAV4 crossover vehicle.

To give sales of future hybrid models a boost, Okamoto said Toyota would design all of its gasoline-electric cars in a way that would make them instantly recognizable as a hybrid -- for example through a unique front grille.

Toyota offers a hybrid version of the best-selling Camry, but the Prius, with its green cachet, far outpaces it in sales.

Ten years since the launch of the Prius, Toyota has few rivals in the hybrid market, with most Europeans geared towards clean-diesel technology as an alternative to petrol engines for saving fuel and reducing carbon dioxide emissions.

Okamoto conceded that diesel engines were inherently better suited for saving fuel over long-distance cruising than hybrids, which capture energy lost during stop-and-start city driving. But he stressed that Toyota's future hybrids would be just as good -- if not better -- than today's diesels on the highway.

Diesel cars now make up more than half of new car sales in Europe, but are virtually non-existent in Japan.

Some European automakers -- as well as domestic ones such as Nissan Motor Co. and Honda Motor Co. are looking to change that, but Okamoto said Toyota would not join the fray.

"There's really no reason to bring diesel cars (to the Japanese market)," he said.