Italy's centre-right government is under increasing pressure amid a growing crisis at carmaker Fiat which may cost thousands of jobs in some of Italy's poorest regions.

Last week, Fiat announced last week it would lay off some 8,100 jobs, around 20 per cent of its Italian workforce, to cut capacities in an ongoing sales slump, and as part of plans to make Fiat Auto more attractive to a possible bidder.

Italy's biggest employer

Fiat workers staged nationwide strikes through last week, and are planning to continue with demonstrations on Friday.

Amid protests, Prime Minister Silvio Berlusconi met Fiat executives on Sunday to discuss possible state aid.

After hours of talks, Berlusconi said in a statement the government was considering possibilities for "a strategic strengthening of the sector", and that all the measures were "market solutions", an apparent reference to concerns that Italy could break European Union rules if it resorted to the kind of direct protection otherwise given by previous Italian governments.

"The industrial and financial plan" - due before the end of October – would allow for a "new path" to boost innovation and "improve" on existing Fiat support plan, the statement said, adding it would "safeguard the manufacturing centres".

Under the plan, the government is considering extending an incentive plan to trade in old cars, but will also add more weight to direct help to workers and the company.

Media reports over the weekend said the government might opt to inject the Fiat group with cash or that Fiat, which sold 20 per cent of Fiat Auto to General Motors Corp. in 2000 would otherwise have to sell the rest to the world's biggest carmaker by 2004.

Best known symbol

Once Europe's biggest carmaker, Fiat has been forced to cut jobs and output as sales of its once successful branch Fiat Auto slumped in Italy. The crisis is more than a matter of economic failure, as Fiat still remains to be Italy's best know symbol worldwide.

Despite its steady decline in sales and increasing losses, Fiat still remains Italy's biggest private sector employer.

Without state aid, thousands will lose their jobs across the country.

Worst hit will be southern Italy where two of Fiat's Italian car plants, including Sicily, one of Europe's poorest regions, face closure. Here, unemployment levels are up to 27 per cent, compared to a 9 per cent national average.

The Archbishop of Palermo in Sicily has already warned that the closure of the Termini Plant and the resulting loss in 2,000 jobs could lead to a serious rise in unemployment, providing "fertile ground" for the Mafia and more crime in the area.