Australia will encourage the development of fuel-efficient and hybrid cars under a plan to revitalise the country's automotive industry, Prime Minister Kevin Rudd said Thursday.

Rudd said producing environmentally friendly cars would be the centrepiece of a government-commissioned plan for the auto industry due to be released later this year.

"In planning for the future, fuel efficiency, including hybrid technology, will lie at the heart of a new car plan for Australia, to help motorists and to help the environment," Rudd told parliament, in a speech marking World Environment Day.

Rudd said the Australian car industry was one of the few in the world capable of building "green" cars from scratch and the government wanted to encourage innovation.

"If we want our children to enjoy the same kind of personal mobility that we have, we have to get smarter about how we build cars and about how we use them," he said.

"That's where the Australian automotive industry comes in."

The prime minister said the industry was at a crossroads in Australia, after shedding more than 11,000 jobs since 1996, including the closure of a Mitsubishi plant in Adelaide earlier this year.

"Creating a new generation of fuel-efficient cars may not only make motoring more affordable and reduce our carbon footprint, it may also revitalise the Australian automotive industry," he said.

Rudd said his government had already set up a 500 million dollar (480 million US) green car innovation fund to speed up the development of low-emission and fuel-efficient vehicles.

He said the government plan, currently being drafted by former Victoria state premier Steve Bracks, would help the industry reinvent itself.

"The government has a responsibility to act in partnership with industry, working with industry, to address the environmental challenge and the fuel challenge faced by motorists," he said.

"When all is said and done, we don't just want a green car, we want a green car industry."

Bracks' industry plan is expected to be delivered to the government on July 31.