Toyota has said it will stop making cars in Australia in less than four years, banging the final nail in the coffin of country's car industry, despite appeals to stay by Prime Minister Tony Abbott.

The car giant said production of vehicles and engines would stop at the end of 2017.

The move throws into doubt 3,900 jobs at its Altona plant in a Melbourne suburb and another 150 jobs at a separate design centre - and leaves Australia with no car plants.

In announcing the news, Toyota blamed several factors for the decision, including the stronger Australian dollar and an increasingly tough market.

Abbott had previously sought talks with Toyota to persuade them to keep the facilities open and prevent a complete collapse of Australia's auto sector.

Toyota's future in Australia had been in serious doubt after US giant General Motors said in December that its Holden offshoot, which employs about 2,900 people, would cease local manufacturing by 2017 after more than six decades.

With Mitsubishi closing its Adelaide plant five years ago and Ford halting vehicle production at its unprofitable Australian operations in 2016 - at a cost 1,200 jobs - Toyota was until today the only company with a commitment to making cars in the country.

The Australian Manufacturing Workers' Union said the move could trigger a recession in Australia, where the economy is struggling with a bumpy transition away from a decade of reliance on mining.

"The magnitude of this decision in the community cannot be underestimated. We are looking at a potential recession all along the southeastern seaboard," said union secretary Dave Smith.

"We believed that we should continue producing vehicles in Australia, and Toyota and its workforce here made every effort," Toyota President Akio Toyoda said in a statement.

"However, various negative factors such as an extremely competitive market and a strong Australian dollar, together with forecasts of a reduction in the total scale of vehicle production in Australia, have forced us to make this painful decision," he added.

Toyota started manufacturing cars in Australia in the early 19060s and still produces its top-selling Camry sedan and other models in the country.

But it immediately announced a review of its own position in Australia following GM's decision to pull out.

"This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia," Toyota Australia said at the time.

"We will now work with our suppliers, key stakeholders and the government to determine our next steps and whether we can continue operating as the sole vehicle manufacturer in Australia."

Holden had cited a "perfect storm of negative influences" for its decision to exit Australia including "the sustained strength of the Australian dollar, high cost of production, small domestic market and arguably the most competitive and fragmented auto market in the world".