Toyota Motor and affiliate Daihatsu Motor have refused to confirm a media report that they have agreed to start producing small passenger cars at a new factory to be built in southern India, the Associated Press (AP) reported on Thursday.

AP said the Nihon Keizai Shimbun reported earlier on Thursday that the two companies planned to assemble 100,000 cars a year at a 10 billion yen ($US89 million; €75 million) plant to be built in Bangalore.

The automakers planned to produce vehicles for the Indian market as early as 2007 based on the Passo model they have co-developed, the business daily reportedly said, citing unnamed sources.

Toyota spokesman Hideki Fujii told the Associated Press that while Toyota was interested in expanding into the Indian market, nothing had been decided yet. Daihatsu also refused to confirm the report.

Fujii told AP that Toyota's sales in India peaked in 2004 at 48,000 vehicles, up 3.5% from the previous year, and the company was looking at ways to continue that trend.

According to AP, the Nikkei said India's auto market is expected to roughly double by 2010 to sales of two million vehicles amid a burgeoning middle class in a booming economy.

At present, Japanese rival Suzuki Motor Corp. commands a 50 percent share of the local market. Toyota hoped to double its own share to 10 percent by 2010 through its agreement with Daihatsu, the Nikkei said, according to the Associated Press.

Fujii told the news agency that Toyota and Daihatsu are already co-operating in other emerging markets like Indonesia, Pakistan and Venezuela.