A new type of high efficiency reciprocating internal combustion engine is being developed, which has separate cylinders for compression and combustion on a common crankshaft. The combustion air is compressed quasi-isothermally using dense water sprays, preheated using engine waste heat and injected into the combustion chamber simultaneously with the fuel. This novel process is predicted to allow net electrical efficiencies of up to 60%. The present paper focuses on the combustion process and the cooling system of a 3 MW four-cylinder prototype engine, which is currently under construction. This includes development of the design for high thermal loading and for combustion, in which pre-compressed and pre-heated air is introduced into the cylinder simultaneously with the fuel. The overall development is aimed at a 7 MW commercial engine, with eight cylinders.