Toyota will supply Mazda with a small, full-hybrid car to sell in Europe.
The car will be based on the Toyota Yaris hybrid, Mazda said in its latest earnings report.
Mazda did not say where the model will fit in its European line up. It could replace the Mazda2, Autocar magazine said.
Adding a hybrid model will help Mazda to meet stricter CO2 emissions reduction goals set for automakers by the European Union.
Mazda last year announced an emissions-pooling deal with Toyota in Europe to avoid paying EU penalties if it misses its mandated reduction target.
In its earnings presentation last month, Mazda said that selling a Yaris-based car will be another way of achieving compliance with the stricter regulations.
Toyota's latest-generation Yaris full hybrid pairs a three-cylinder gasoline engine with a lithium ion battery for the first time to reduce CO2 emissions by more than 20 percent compared with the previous-generation hybrid, according to the automaker.
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The current Mazda2 was launched in 2014 and overhauled last year to include mild hybrid technology. European sales of the Mazda2 fell 56 percent to 13,559 in the first 10 months, according to JATO Dynamics market researchers.
The new Mazda could be built in Toyota's factory in Kolin, Czech Republic, which currently builds minicars for Toyota, Peugeot and Citroen under a joint venture between PSA and Toyota.
Toyota will take full ownership of the plant next year.
Earlier this year Toyota announced it would build the Yaris at the plant at a future unspecified date.
Toyota will continue to build Yaris at its Valenciennes plant in northern France, but the factory is expected to get close to its 300,000 capacity when the automaker adds the Yaris Cross later next year.
Toyota owns a 5 percent stake in Mazda as part of a cross-holding deal agreed in 2017 and the two are partnering on a new electric vehicle along with Subaru.
Mazda will also use Toyota's hybrid technology in a new SUV to be built in two companies' new joint venture U.S. plant in Huntsville, Alabama, as well as in a new model for China, Mazda said in its financial report.
"As one of the multi-solution measures, we concluded that the THS [Toyota Hybrid System] is the optimum solution to respond to each region's needs and requirements," Mazda told Autocar.
Toyota also has supply partnerships with fellow Japanese automakers Suzuki and Subaru in Europe. Toyota's UK plant builds a version of the Corolla wagon hybrid call the Suzuki Swace, while Suzuki imports a rebadged version of the RAV4 plug-in hybrid, called the Across. The Subaru Crosstrek uses Toyota's hybrid technology.
