FCVs are touted as the ultimate "green car" since they emit only water as a by-product, creating electricity by combining hydrogen and oxygen, but mass production is believed to be at least a decade away due to high costs and lack of infrastructure to supply and store hydrogen.

Honda declined to give details on the scope of cost reduction the new technology would achieve, but Yuji Kawaguchi, senior chief engineer at Honda R&D Co, said cost savings were "big".

A gasoline engine can produce one kilowatt of energy for about $50, while a one-kilowatt fuel cell on the market today costs around $5,000.

"We want to be able to sell the fuel cell stack as soon as possible, although we have no concrete plans at the moment," Kawaguchi told a news conference.

Honda's new fuel cell stack features a separator made of metal that is stamped together, versus conventional separators made of carbon that need to be fastened with bolts. The new technology almost halves the number of components, bringing down production time and costs.

The stack also uses newly developed "aromatic" electrolyte membranes made of petroleum-based material instead of the more expensive and complex fluorine electrolyte membranes used in Honda's current FCV.

The new features also increase driving range by 40 km (25 miles) to 395 km (245 miles), although that is short of the minimum 500 km believed to be needed to make FCVs truly practical.

Honda is one of only a handful of auto makers with a saleable FCV on the road, but it has been using fuel cells developed by Canada's Ballard Power Systems BLD.TO . Ballard and Honda have a three-year supply pact until 2005.

Kawaguchi said Honda's new fuel cell stack is better than any on the road now, but stressed its relationship with Ballard would not change.

"We will continue to cooperate and compete with Ballard," he said.