It will be based on the company’s forthcoming 900cc two-cylinder unit – which will debut at July’s Good-wood Festival of Speed in West Sussex. The engine is mated to a motor and a battery pack, and will allow small cars like the 500 to run solely on electricity for short distances. Add a stop-start system and VW DSG-style twin-clutch gearbox, and it promises reduced CO2 emissions – engineers estimate a figure of below 90g/km!

That would help Fiat comply with the European Commission’s plans to impose an average 120g/km limit on the model ranges of all firms selling cars across the Continent by 2012.

No details have been revealed on the engine’s output, but it’s likely to come in two forms, as previewed by the Panda Aria concept at last Sept-ember’s Frankfurt Motor Show.

That car debuted the 900cc twin alongside a 105bhp turbo version, and Fiat also has plans for a normally aspirated 65bhp variant. The hybrid 500 is likely to benefit from other green technologies seen on the Aria, which include low-rolling-resistance tyres. The featherweight two-cylinder engine is 20 per cent lighter than a four-cylinder motor, so owners could expect 80mpg-plus fuel economy.

Alfredo Altavilla, boss of powertrain technologies at Fiat, told us the hybrid drivetrain should go into production in three years’ time. It would feature across Fiat’s small car range, making appearances in the Panda and Grande Punto.

And while the first petrol-electric cars may not be seen in showrooms until 2011, the all-new two-cylinder petrol engine will be available in the 500 before the end of the year.