The company said it decided on the call-back -- its biggest-ever for the vehicle -- after the discovery of problems with software used to control a power converter that posed a risk to drivers.
"Because, in the worst case, the car could stop while driving we do consider this a potential safety issue and that's the reason why we are implementing this recall," a Tokyo-based company spokesman said.
No accidents have been reported as a result of the defect, the world's biggest automaker said.
The Prius was one of the first hybrid cars to go mainstream and was quickly adopted as a symbol of green, with the likes of Leonardo DiCaprio and Cameron Diaz snapped behind the wheel.
The company recalled Prius models last year and in 2010 for different problems, but Wednesday's announcement marked the biggest call-back for a car that Toyota has bet will lead a bigger move to green cars
Last year Toyota's chairman Takeshi Uchiyamada challenged automakers to step up sales of hybrids in the United States, calling them "a long bridge" into future vehicles.
He was chief engineer of the Toyota team that developed the Prius, the world's first mass-produced gasoline-electric hybrid car, and launched it in 1997. Since then, the company has sold over 3.6 million Prius globally.
Today Toyota said that, in most cases, the defect could set off a vehicle's warning lights and "probably" cause it to enter "failsafe mode", in which the car can still be driven but with reduced power.
"It would slow down, eventually to stop," it added.
Toyota said it was aware of more than 400 cases of the problem, including 300 in Japan and 90 in North America.
The recall covers about 997,000 vehicles in Japan with another 713,000 vehicles in North America. Most of the remainder are in Europe, the Middle East, and China.
The problem is the latest for Toyota and other Japanese automakers that have recalled millions of vehicles in recent years, damaging their long-held reputation for quality and safety.
In October a US court found Toyota was not to blame for a fatal crash involving claims of unintended acceleration, a case that sparked huge global recalls.
But weeks later, the automaker lost a related court case in which it was found at fault for a fatal accident.
Toyota earlier agreed to pay about $ 1.1 billion to settle a class action lawsuit launched by US vehicle owners affected by the series of mass recalls.