TOKYO (Reuters) -- In any other country, auto maker Iran Khodro would be envied: it controls three-fifth of its fast-growing and heavily-protected home market where supply falls chronically short of demand. Instead, Amir Albadvi, an executive at the top Iranian auto maker, is desperate for a foreign partner - preferably Japanese - and foreign competitors. His aim is to become big enough to supply cars not just for Iran, but for its neighbors as well. "We want to be the Detroit of the Middle East," Albadvi, Iran Khodro's executive vice president in charge of strategy, told Reuters in an interview on Wednesday. "It's a market with a population of 400 million people, with no major auto manufacturer."

Iran Khodro is the biggest auto maker in the Middle East with annual output capacity of 800,000 cars, trucks and buses, and $3.8 billion of sales forecast for this year.

While the company is profitable - its eight percent net profit margin is comparable to Toyota Motor's - it wants to dominate a region with so much unmet demand.

But Albadvi knows Iran Khodro can't go it alone without the technological expertise and global reach of a partner.

"We know we can't continue to have 60 percent of the (domestic) market forever," he said on the sidelines of an industry conference in Bangkok. "But to maintain our current rate of growth, we need to be part of the global car market, with outside partners whose distribution and platforms we can share."

Iran's car demand of one million units makes it a bigger market than India, which along with China has stolen the limelight in recent years as the world's most promising markets.

Iran's passenger car sales have grown an average 32 percent annually since 1996, but with supply expected to reach 700,000 units this year, 30 percent of demand is unmet and Iranians must wait four to six months for their cars.

A few European auto makers are starting to take notice, but to Albadvi's dismay, several Japanese auto makers have rejected Iran Khodro's approaches, he said.

"We want Japanese partners rather than European ones because the demand structure in Iran is more similar to Japan's and we want to learn about productivity and technical skills.

Other Japanese investors are eyeing Iran and waiting for the up-coming news about the Islamic republic's nuclear peaceful plan. Japanese firms wanting to develop Iran's Azadegan oil field have been unable to strike a deal. A Toyota spokesman said the group was busy until 2006 with expansion plans in Eastern Europe, Asia and the Americas.

Nissan Motor, meanwhile, is increasing its presence, but doing so cautiously only with high-end, low-volume vehicles. FEW QUALMS FOR FRENCH

The French, however, are more eager. While PSA Peugeot Citroen has no capital exposure in the country, Iran has become its third-biggest market after France and England, grossing sales of 1 billion dollar.

Rival Renault agreed last month to invest 750 million euros ($872 million) in a joint venture with an Iranian consortium that includes Iran Khodro, to build and sell its cut-price L90 car in Iran, which it once pulled out of in 1992.

Until Renault's L90 hits the market, Iran Khodro's box-shaped, gas-guzzling Paykan car will continue to dominate Iran's market. Little changed since Iran bought the license to assemble the Hillman Hunter look-alike from the British automaker in the 1960s, the car is blamed for the pollution that enshrouds Tehran.

The government, aiming to improve fuel efficiency, wants to replace 2.5 million cars built more than 17 years ago with new ones over the next five years. "Up to 2010, there should be a new-car market of 10 million units," he said. "We need at least another two foreign companies in Iran.