Toyota's hugely popular Prius hybrid ranked as Japan's top-selling car in July, clinching the spot for the third consecutive month as tax breaks boosted sales of green vehicles, an auto-industry group said Thursday.

The Japan Automobile Dealers Association said Toyota Motor Corp, the world's No. 1 automaker, sold 27,712 Prius cars in July, up 24 per cent from June.

Sales of gas-electric hybrid cars have been surging in Japan despite the global auto slump, helped by government incentives such as making hybrid vehicles tax-free.

"The government programme is spurring demand for hybrid vehicles like the Prius. Strong sales of the Prius also reflected a trend that consumers were interested in eco-friendly products," said Kentaro Nakata, an association spokesman.

Toyota's rival, Honda Motor Co, also enjoyed brisk sales of the Insight hybrid. Japan's No. 2 automaker sold 10,210 Insight cars in July, up 16.3 per cent from June.

The Insight, a hybrid marketed as a cheaper alternative to the Prius, held the No. 4 slot in July auto sales. Honda's popular Fit compact secured the No. 2 spot in July sales.

Toyota's Vitz subcompact, which is marketed overseas as the Yaris, came third in July auto sales, the association said.

Honda, meanwhile, Thursday brushed off claims in Japanese and overseas media that the Insight is a copycat of the Prius.

"We don't think it looks like the Prius at all," said Nobuki Ebisawa, managing director at Honda R&D Co, Honda Motor Co's research unit. "There may be some similarities in the roof line, but it is clearly different."

Ebisawa acknowledged considerations for maximising aerodynamics and placing the hybrid system of electric motor and gas engine may make for similar styling in hybrids cars.

Any similarities between the Prius and Insight are coincidence, he said.