Lexus has officially confirmed it will build a BMW 1-series rival. Speaking to the German media, European company MD Tadashi Arashima told reporters: 'We will offer a Lexus in the compact class'. He explained that Lexus needed 'smaller and more efficient vehicles' in the face of European CO2 regulations.

When will we see this new baby Lexus?

Arashima refused to speculate on a possible launch date, but the on-again-off-again baby IS won’t see the light of day until the next decade. Expect rear-wheel drive and L-Finesse looks.

In his interview, Arashima likened the car to BMW's 1-series and , but its new model isn’t the only small Lexus on the way. To separate itself from rivals, Lexus wants to offer more hybrid models – the company intends to launch a baby hybrid, first into the US, then Europe.

Sharing its modular architecture with the new Toyota Prius, the Lexus version will feature a larger engine, possibly as big as a 2.5-litre unit. Expect the five-door hybrid hatch in late 2009, with a design that resembles Toyota's Hybrid X concept (pictured above right).