Toyota Motor Corp., Asia’s largest automaker, will begin selling its smallest hybrid car in Japan today to compete with Honda Motor Co. for younger consumers seeking an entry-level fuel-efficient vehicle.

The Aqua compact hybrid, to be marketed as the Prius C in the U.S., will cost from 1.69 million yen ($21,700), the Toyota City, Japan-based carmaker said today in a statement. The company aims to sell 12,000 Aquas a month in its home market.

Toyotais counting on gasoline-electric models, led by an expanded Prius lineup, to meet a goal of increasing global vehicle sales 20 percent next year. Honda’s Fit compact car, sold in hybrid and conventional gasoline-engine versions, outsold the larger Prius in the first six months of this year in Japan, underscoring consumer demand for smaller fuel-efficient cars.

“The Aqua shows Toyota is increasing efforts to boost sales in the domestic market,” said Mamoru Kato, an auto analyst at Tokai Tokyo Research Center in Nagoya, Japan. “Toyota raised the price of the Prius to a more profitable level, so the Aqua serves to meet demand for smaller, cheaper hybrids.”

The Aqua measures 3.9 meters (12.8 feet) in length, compared with the 4.48-meter Prius, and has as much legroom as a Corolla compact, according to chief engineer Satoshi Ogiso. It costs 22 percent less than the Prius, which starts from 2.17 million yen, according to Toyota’s website.

Prius Sales

The new model delivers a locally rated 35 kilometers per liter. That compares with 30 kilometers per liter for the hybrid version of the Fit, which starts from 1.59 million yen, according to Honda’s website.

Domestic sales of the Prius plummeted 51 percent in the first six months of this year to 83,319 vehicles as Japan’s March 11 earthquake and tsunami disrupted production. Honda’s Fit topped the market segment with sales of 88,282, a 2 percent decrease from a year earlier.

U.S.deliveries of the Prius, the world’s best-selling hybrid car, rose 49 percent last month from a year earlier, according to Autodata Corp.

“While hybrids are generally projected to sell in developed markets like the U.S., it’s difficult to say if such a small car as the Prius C will sell,” said Tokai Tokyo’s Kato.

Toyotabegan selling a wagon version of the Prius in May and will also introduce a plug-in version, which can run about 23 kilometers on its lithium-ion battery before its gasoline engine kicks in, next month in Japan and by March in the U.S.