WARSAW (Reuters) - Japan's Toyota Motor Corp (>> Toyota Motor Corp) will invest 400 million zlotys ($113 million) in manufacturing a new combustion engine for hybrid vehicles in Poland, the company and Polish authorities said on Tuesday.

Toyota will start production of the new-generation 1.5 litre engine from 2020 in its factory in the south-western city of Jelcz-Laskowice. The engine will be used in so-called hybrid vehicles, which also have an electric engine installed.

"Hybrid drives currently account for 40 percent of Toyota's European sales and their share is growing rapidly," Eiji Takeichi, head of Toyota Motor Manufacturing Poland, was quoted as saying in a statement from the Polish economy ministry.

"This investment means that we will be able to meet market demand," he said.

Toyota said in September it had established a new venture to develop fully electric vehicle technology with partner Mazda Motor, seeking to catch up with rivals in an increasingly frenetic race to produce more battery-powered cars.

Both automakers are somewhat behind their peers, with neither having a fully electric passenger car on the market. This contrasts with Tesla (>> Tesla), which unveiled in November an electric heavy duty truck as well as a new roadster.

Toyota currently has two manufacturing plants in Poland's Lower Silesia region. The combustion engine factory in Jelcz-Laskowice employs nearly 500 people while another plant in the city of Walbrzych, which also produces transmissions, employs 1,500 people.

(Reporting by Marcin Goettig; Editing by Mark Potter)

Stocks treated in this article : Tesla, Toyota Motor Corp