French car giant PSA Peugeot Citroen has unveiled a new hybrid prototype car which can run on petrol or compressed air.

The company says it will put an air-powered vehicle on the road by 2016, and the new technology has been devised as part of its aim to develop a 117 miles per gallon car by 2020.

The system works by using a normal internal combustion engine, special hydraulics and an adapted gearbox along with compressed air cylinders that store and release energy. This enables it to run on petrol or air, or a combination of the two.

Air power would be used solely for city use, being automatically activated below 43mph.

The company’s scientists claim it will knock 45% off fuel bills for an average motorist, and when driving in towns and cities costs could be slashed by as much as 80% because the car will be running on air for four-fifths of the time.

The company claims cars fitted with its hybrid air system will be about £1,000 cheaper to buy than current hybrid models, which require expensive batteries.

The system will be able to be installed on any normal family car without altering its external shape or size or reducing the boot size, provided the spare wheel is not stored there. From the outside, an air-powered car will look identical to a conventional vehicle.

A spokesman said: “We are not talking about weird and wacky machines. These are going to be in everyday cars.”