Environmentally friendly ethanol-powered cars are proving increasingly popular in Brazil as oil prices hit record levels.

New flex-fuel engines, powered by ethanol or gasoline or a combination of both, are produced by many major car manufacturers in Brazil and several others have plans to start production.

In 1989 Brazil ground to a halt after supplies of the sugar cane-based fuel ran out and sales of ethanol-powered cars plummeted, but producers insist there is no chance this would happen again, Reuters reports.

Gasoline price hikes caused by soaring oil prices, growing concern over air pollution from fossil fuels and the arrival of flex-fuel cars, which many claim perform better, have help drive sales of ethanol-powered vehicles.

Launched in Brazil in March 2003, flex-fuel cars had grabbed 30 per cent of new car sales by this September and are expected to take half the market next year, the National Association of Vehicle Manufacturers estimates.

Brazilian ethanol output is expected to increase to some 23 billion litres in 2010, from an estimated 15.5 billion this year and analysts predict that rising ethanol prices would encourage millers to produce more of the fuel and less sugar.

Ethanol is some 40 per cent cheaper than gasoline.