Toyota Motor Corp, likely to claim the title of world's biggest automaker later this month from General Motors Corp , on Monday threw down the gauntlet to GM in a race for the next green car.

In the process, Toyota -- the world leader in popular gas-electric hybrids like the Prius sedan -- may have short-circuited GM's year-old effort to bring the first plug in electric cars to market.

We welcome competition because that is how new technology is developed for consumers, Toyota President Katsuaki Watanabe told reporters at the Detroit Auto Show Monday. But we don't want to lose.

Watanabe announced that Toyota will market a test fleet of rechargeable hybrid vehicles to companies or government agencies by the end of 2010.

Toyota has already begun preparations to build a factory that will produce the next-generation lithium-ion batteries needed for plug-ins and purely electric vehicles.

Hybrids are a core business for Toyota, Watanabe said. That strategy has absolutely not changed.

The comments were the clearest statement yet from the top Japanese automaker of its commitment to plug-in vehicle technology and amounted to a direct challenge to GM, which won widespread attention at the auto show last year, when it announced plans to build its own rechargeable vehicle, the Volt.

Toyota's confident and aggressive tone was in contrast to a briefing about the same time by Bob Lutz, GM's vice chairman and design chief, who has championed the Volt as the keystone to GM's fight to win green consumers concerned about global warming and fuel efficiency.

The end of 2010 is a big stretch, Lutz said, when asked if the Volt was on track for production in two years.

It means everything has to go right and so far everything has gone right, Lutz told reporters. Right now, we are very confident of getting it. But normally for a program this complex and with a technology the company has never executed before, you would like to give yourself more time.

Unlike gas-electric hybrids, which run on a system that twins battery power and a combustion engine, plug-ins are designed for short trips powered entirely by an electric motor and a battery charged through a socket at home.

GM is designing the Volt to run 40 miles on battery power alone, with an on-board gasoline-powered engine as a backup.

The Volt would be outfitted with new lithium-ion battery packs, which are more powerful than the nickel-metal hydride batteries used in many hybrid cars.

Lutz said the battery technology has shown no problems so far and a working lithium-ion battery pack for the Volt could be demonstrated by June 2008. But the Volt requires a complete re-engineering of a standard passenger vehicle, he said.

Environmental advocates see plug-ins as a way to cut fuel consumption and greenhouse gas emissions. The sharp increase in fuel economy the vehicles could also help automakers meet more stringent U.S. fuel economy standards.

GM's head of North American operations, Troy Clarke, later told reporters that GM may launch a plug-in version of its Saturn Vue sport utility vehicle in 2010, possibly making it the first commercially available electric vehicle.

It could precede the Volt, said Clarke, adding the Saturn Vue would run 10 miles on battery power alone.

An official for Ford Motor Co said Monday its own tests on a plug-in car should last several years and are not based on being the first to launch an all-electric vehicle.

This is not a case where we are being driven by first-to-market (strategy), Derrick Kuzak, the company's global product chief, told Reuters at the show.

The fanfare at the Detroit show spans the green gamut from hybrids to futuristic technologies like fuel cells. But diesel was also touted as a cleaned up technology.

Cleaner diesel filters out more pollutants and for the first time meets smog pollution laws in all states, according to the Union of Concerned Scientists. Clean diesel also delivers power and gets better mileage than gasoline.

It is a major step forward in fuel saving and we are going across the board to promote technology, said Dieter Zetsche, chief executive of Daimler AG and Mercedes.

Both Toyota and Japanese rival Honda Motor Co announced major expansions of diesels for the U.S. market.

(Additional reporting by Kevin Krolicki, Jui Chakravorty, Chang-Ran Kim and Nick Carey; Writing by Peter Bohan; Editing by Jeffrey Benkoe)