Malaysia's state-owned carmaker Proton is developing a new, fuel-efficient hybrid car to beat rising costs and address environmental concerns, reports said Sunday.

Prime Minister Abdullah Ahmad Badawi told the state Bernama news agency he had already test-driven the car and urged the company to continue researching energy-saving techonologies.

"The kind of car that all countries and car companies love now is the green car. Consumers will also be happy when they drive such a car knowing it saves fuel and does not pollute," the Star daily quoted him as saying.

"Such an effort by Proton will also assist the government in saving petrol and preserving the environment."

Hybrid vehicles, which deliver power by switching between a gasoline (petrol) engine and an electric motor, can save up to 30 percent on fuel costs but they are more expensive than conventional models.

Proton was formed 25 years ago by former premier Mahathir Mohamad as part of an ambitious national industrialisation plan but its market share has slumped over the years, as it faced difficulties coping in a new deregulated market.

The government has urged it to forge a partnership with a foreign automaker to give it the expertise and economies of scale that it needs to survive, but talks with Volkswagen and General Motors have collapsed.

The company aims to launch its first multi-purpose vehicle early next year, Bernama reported.