(Reuters) -Toyota Motor and Japan's Nippon Telegraph and Telephone (NTT) will invest 500 billion yen ($3.26 billion) in research and development to create artificial intelligence software to improve self-driving, Nikkei reported on Tuesday.

The automaker and the Tokyo-headquartered telecommunications major are planning to develop automotive software which will use AI to anticipate accidents and take control of the vehicle, the report said.

The firms are currently looking to have a working system ready by 2028 and provide it to other automakers.

The deal comes at a time when Japanese automakers are looking to tap into the booming advanced autonomous driving market, which is primarily dominated by Tesla and other Chinese firms.

Toyota's Mirai fuel-cell vehicle has been equipped with a hands-free driving function since 2021.

The two firms had joined hands back in 2017 to develop technology for 5G-connected cars and a capital tie-up as part of a smart city project in 2020.

Toyota said the information in the report was not something it had announced. It added it would continue to cooperate with NTT to create a safe and secure mobility future.

NTT did not immediately respond to Reuters requests for comment.

($1 = 153.2300 yen)

(Reporting by Shivangi Lahiri in Bengaluru; Additional reporting by Maki Shiraki in Tokyo; Editing by Shailesh Kuber)