Japanese auto giant Toyota Motor Corp is planning to build an assembly plant in a Malaysian town bordering Thailand as part of its expansion plans, a report said today.

Kedah menteri Besar Syed Razak Syed Zain was quoted by the New Straits Times as saying that Toyota was negotiating a deal with the state government to build the plant on a 900-hectare site in Bukit Kayu Hitam.

Toyota is attracted to the border town which has emerged as a prime industrial area due to its proximity to the Thai border, he said, but declined to elaborate further.

Chinese carmaker Tempo has also expressed interest to set up an assembly plant in the same town, he added.

Toyota is the most popular make in Malaysia after national cars Proton and Perodua, and has long dominated sales in the non-national car segment. It sold 40,239 vehicles last year, or nearly 10 percent of the total market share.

The Japanese giant and other foreign carmakers are making rapid inroads in Malaysia ahead of market liberalisation in 2005 under the Association of Southeast Asian Nations (Asean) Free Trade Area (Afta).

Under Afta, import tariffs for most products in the region were cut to below five percent in the past year. But Malaysia, one of the region's top passenger car markets, obtained a two-year reprieve for its auto industry.