Toyota is pulling out of Formula One racing, saying on Wednesday it needs to cut costs and focus on its core business.

"Based on the current economic environment, we realise we have no choice but to withdraw from Formula One," Toyota president Akio Toyoda said.

"This has been a very painful decision for the company."

Toyota, the world's largest automaker, follows Honda as the second major Japanese company to withdraw from the sport in the last 11 months. Honda pulled out in December 2008 amid worsening economic conditions. Brawn GP, which took over the old Honda team, won the 2009 F1 championship.

Toyota officials said the withdrawal was complete, making it unlikely the company will return to F1 when and if conditions improve.

Governing body FIA said it would undertake a "legal review" of the pullout since it comes only weeks after the team committed to the sport through 2012.

"The particular financial pressures within the car manufacturing industry - together with a period of uncertainty and unnecessary confrontation in F1 that is now finally over - created conditions which have made it difficult for Toyota to stay in the sport," the Formula One Teams Association said in a statement.

"The departure of an important car manufacturer cannot be underestimated and its reasons need to be addressed."

Toyota, which posted its worst ever loss in the financial year that ended March, is seeking to cut costs as it expects to post an operating loss for the six months that ended September 30. It is due to report earnings Thursday.

Toyoda, the grandson of the company's founder who became president this year, has vowed to avoid a third straight year of losses.

On Monday, Japanese tyre manufacturer Bridgestone announced it would not renew its exclusive deal to supply tyres for F1 when its contract expires in 2010.

F1 is not the only motor sport to be affected by the economic crisis. Citing similar concerns to Toyota and Honda, fellow Japanese automakers Subaru and Suzuki pulled out of the World Rally Championship ahead of the 2009 season.

Toyota made its F1 debut in 2002 but never won a grand prix race. The team's best results came in 2005 when Jarno Trulli posted second-place finishes in Malaysia and Bahrain.

Toyoda said the team's poor results were not a factor in the decision to leave the sport.

"Our decision would not have changed even if we had a victory," Toyoda said.

"The fact that we are unable to give our drivers a chance to compete is very sad."

Despite a promising start to the 2009 season, Toyota finished fifth in the constructors' standings.

Toyota's withdrawal from F1 will mean that for the first time in eight years there will be no Japanese constructor on the grid for the 2010 season.

The withdrawal also leaves just three manufacturers in F1 - Ferrari, Mercedes and Renault - and opens the way for Sauber to become the 13th team in next year's championship.

"Eco-friendly cars are our top priority," Toyoda said. "I have called for Toyota to service our customers one at a time with exciting vehicles that meet our customer's needs."