Toyota Motor has put on ice a joint venture with Isuzu Motors that was developing a 1.6-litre aluminium diesel engine for vehicles sold in Europe.

''The outlook for the European market has become highly uncertain after the global economy changed dramatically from this year,'' the automaker said in a statement.

The news followed an announcement this week Toyota would delay indefinitely Prius production in a new factory being built in the US state of Mississippi. The automaker will complete the plant but not fit it out.

The Isuzu JV is a victim of recent Toyota efforts to review large projects amid falling global auto sales and its own reduced profit forecasts.

Analysts told Kyodo News the move may lead to further scaling down or freezing of other new projects currently being planned.

Isuzu had expected to start making the engine in Japan from around 2012, but that plan is set to be put off for some time, sources told the news agency.

Toyota plans to reduce production in Japan by halting operation at almost all of its factories for three days next month, the sources told Kyodo News. It may continue similar output-reducing measures until March [the end of the fiscal year], they added.

Other sources had earlier told Kyodo News Toyota was expected to further revise downward its group earnings projections for the second half of the current fiscal year and to report an operating loss of about JPY100bn yen for the October-March period.

Isuzu is also reviewing investment plans, a spokesman told Agence France-Presse.

Isuzu president Susumu Hosoi had told local media the company intended to freeze some capital spending including plans for Saudi Arabia and Russia.

"Given unclear outlooks for sales, the market and foreign exchange rates, we have to freeze all projects that have not yet been officially decided on in order to restrain our spending," Hosoi was quoted as saying.