  We consider a variant of hybrid inflation where the waterfall phase
transition happens during inflation. By adjusting the parameters associated
with the mass of the waterfall field we arrange that the phase transition is
not sharp so inflation can proceed for about 50-60 e-folds after the waterfall
phase transition. We show that one can work in the limit where the quantum
back-reactions are subdominant compared to the classical back-reactions. It is
shown that significant amount of large scale curvature perturbations are
induced from the entropy perturbations. The curvature perturbations spectral
index is either blue or red depending on whether the mode of interest leaves
the horizon before the phase transition or after the phase transition. This can
have interesting observational consequences on CMB. The non-Gaussianity
parameter $f_{NL}$ is calculated to be $\lesssim 1$ but much bigger than the
slow-roll parameters.
