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Lexus will significantly upgrade its CT hybrid over the next three years.

Toyota is planning to refresh its Lexus CT 200h hybrid next year before introducing an all-new model sometime in 2016. The updated CT will help Lexus take on new entrants into the compact luxury market like the Mercedes-Benz CLA and Audi A3.

Speaking with GoAuto, Lexus Australia chief executive Sean Hanley revealed that Toyota's luxury division is planning a mid-cycle update for the CT next year. The CT 200h is currently the only Lexus vehicle that hasn't been graced with the automaker's new spindle front grille treatment.

Following that mid-cycle update, Lexus will introduce an all-new CT 200h sometime around 2016. The new CT will continue to be offered as a hatchback, but Hanley hinted that a sedan could join the range to broaden the car's appeal in the United States and China.

"There's a big opportunity for us (with CT 200h) in the next cycle of the car," he said.

Lexus' previous small hybrid sedan, the HS, failed to make a dent in the sales charts, but a purpose-built CT sedan could give Lexus the ammunition to take on the CLA and A3.

So far this year CT sales in the United States have dipped 16 percent to 11,440 units.