By Maki Shiraki and Naomi Tajitsu

TOKYO (Reuters) - Toyota Motor Corp <7203.T> will raise its stake in Subaru Corp <7270.T> to 20% from around 17%, the two Japanese automakers said on Friday, as they leverage their scale to better compete in developing new vehicle technologies.

The investment comes a month after Toyota and another smaller Japanese automaker, Suzuki Motor Corp <7269.T>, said they would take small equity stakes in each other.

Such tie-ups highlight how automakers are scrambling to chase scale, manage costs and boost development required to develop self-driving cars, electric vehicles and new mobility services which are upending the global auto industry.

"In this once-in-a-century period of profound transformation, by strengthening their bonds and aligning their capabilities, Toyota and Subaru aim ... to make ever-better cars," Toyota said in a statement.

Japan's biggest automaker whose annual global vehicle sales are 10 times that of Subaru, said its investment would amount to up to 80 billion yen ($742 million) based on Subaru's stock market value. The smaller automaker will reciprocate by buying a stake in Toyota of equal value.

Traditional car makers, especially smaller ones such as Subaru and Suzuki, are struggling to meet the fast pace of change in an industry which is shifting to a business model of providing transportation services from simply selling cars to drivers.

Their deepening partnerships with Toyota, which already oversees a vast, closely knit network of group companies that include suppliers, vendors and commercial vehicle makers, has raised speculation that these smaller automakers may be absorbed into the Toyota fabric in the future.

"The plan appears to be to ultimately make Subaru a fully owned subsidiary, to help create a 'mega Toyota'. This is the first step toward that," said Takeshi Miyao, managing director of consultancy Carnorama. "It's all about building scale."

But Subaru President Tomomi Nakamura was adamant that his company would remain independent for now.

"I can assure you that there was absolutely no talk of Subaru becoming a Toyota subsidiary ... either from our side or theirs," Subaru President Tomomi Nakamura told reporters after the announcement.

JOINING FORCES

Car makers around the world are joining forces to slash development and manufacturing costs of new technology. Ford Motor Co <F.N> and Volkswagen <VOWG_p.DE> have said they will spend billions of dollars to jointly develop electric and self-driving vehicles.