Small-scale series production of the B-Class F-Cell will begin in early 2010, the carmaker said at the Frankfurt car show as part of its campaign to polish its environmental credentials by rolling out cleaner and more fuel-efficient cars.

It is still deciding how to market the car whose cost will far outstrip that of conventional rivals, said Thomas Weber, the group's research head and development chief at Mercedes.

"We will have this auto at the starting line and bring it to market at whatever conditions (we determine). We will certainly not be able to sell it in normal showrooms," he told Reuters.

"A fuel cell car will be far removed from the cost position of a traditional car in 2010, but it is emissions free, it goes 400 km (240 miles), it has sensational acceleration from 0 to 100 (km/hour) and it consumes less than the equivalent of three liters" of diesel fuel per 100 km driven, he added.

The new B-Class car's electric engine will generate top output of 136 horsepower and perform on par with a two-liter petrol engine, the company said.

Weber said Mercedes may end up leasing the car to customers or institutions at prices that still don't cover the cost.

Rival BMW already leases small numbers of specially equipped 7-Series executive cars that burn hydrogen in converted engines rather than using fuel cells.

Fuel cells use the interaction between hydrogen and oxygen to generate electricity that powers the car while emitting only water but they have not yet become commercially viable.

Proponents insist that 5 million to 10 million fuel cell cars could be on the road within 15 years, with the number ballooning to 350 million worldwide by 2050.

But while the technology is making great strides, it still costs far too much and lacks the widespread infrastructure that motorists will need to fill their tanks with hydrogen.

DaimlerChrysler, a market leader with around 100 fuel cell vehicles on the street for testing, had earlier estimated that fuel cell cars would make their commercial debut between 2012 and 2015 in limited numbers.

Costs, reliability and durability remain serious challenges.

For instance, fuel cell cars need to have an operating life of about 5,000 hours to compete effectively but at this stage typically last less than half of that.

Prices have to fall drastically as well if automakers expect buyers to switch to hydrogen-powered cars, because history shows consumers won't pay more for vehicles whose performance lags what is already on the road.