Hybrid taxis that run on both petrol and electricity and emit less exhaust fumes could be on the road as early as February.
Crown Motors, sole distributor for main taxi supplier Toyota, said it was talking to the Transport Department about its plan.
It had received orders for 20 cars, which would be ready to for use before the Lunar New Year.
The announcement came three months after Nissan said it planned to introduce 50 Leaf electric vehicles for trial as taxis early next year.
Crown Motors' general manager for public vehicles, Ernest Wong Sai-kit, said the company had been preparing for the hybrid taxi launch for a year and its plan was unrelated to Nissan's.
"Hybrid cars do not need to be recharged, which we believe fits cabbies' habits best," he said.
"The greatest challenge of using electric cars as cabs is that drivers will have to spend time charging their taxis."
Toyota said in 2008 that its hybrid cars were not intended for commercial use, but David Lee Kai-cheung, of Crown Motors, said experience had shown the cars fitted the purpose.
The Prius was being used in taxi fleets in many major cities, including Tokyo, Sydney, Paris and Toronto, and drivers should not be worried about its performance and durability, he said.
A hybrid car charges its own batteries while it is running.
When it is starting or moving slowly, it uses only the electric motor, consuming no petrol. As it does not rely on petrol all the time, emissions are reduced.
A 1,788cc hybrid taxi, before tax, will cost HK$269,000, which is HK$18,000 more than a regular LPG taxi. A litre of LPG costs about HK$5.22, while petrol costs HK$16.97. Although a hybrid car can travel further on the same amount of fuel, it is still 13 cents more expensive to run per kilometre than an LPG cab.
Wong said that the company was co-operating with Caltex petrol stations to offer a HK$3-a-litre discount on petrol for hybrid taxi drivers until the end of next year, and might extend the plan after that.
Lai Hoi-ping, of the Hong Kong Taxi Association, which represents owners of 800 urban taxis, said he believed electric taxis would be the most environmentally friendly and fuel would be the cheapest.
Wong Wing-chung, of the Northwestern Area Taxi Drivers and Operators Association, said he was worried about the durability of the engines on hybrid cars.