Fiat has seen sales and market share in Italy and Europe slump this year - a key factor behind the industrial group's net loss of 529 million euros ($522.7 million) in the first quarter and 3,000 job cuts in Italy announced earlier this year.

As Fiat fails to shift stock out of the showrooms, it has often run to temporary layoffs to stop cars piling up down the production line.

The new round of layoffs would affect workers from Turin to Sicily with between 740 and 21,700 workers laying down tools at over the five weeks, Fiat said.

Five factories will close down over the period, including Cassino, where the new Stilo model is made, and the Arese-Vamia plant which manufactures environmentally-friendly cars including the newer versions of the Punto, Seicento and Panda.

In a bid to help Fiat out of its current crisis, Italy's government last week signed a decree giving tax breaks to anyone selling an old polluting car in order to buy a new eco-friendly compact car in the next three years.

Fiat added to the incentives, cutting the price and offering zero-financing on some of its small low-polluting cars.

Fiat's sales have slumped in Italy and its market share sank below 30 percent for the first time in June when it sold 51,710 cars. The drop in sales helped shrink the Italian auto market 13.4 percent in the first half of the year.

As Fiat, maker of the popular Punto city car, fails to cure its sales slump, analysts believe it is likely to take up an option to sell its 80 percent stake in Fiat Auto to partner General Motors Corp. .

GM bought the other 20 percent in 2000 and gave Fiat the option to sell the rest of the group, which includes the Alfa Romeo and Lancia marques, from 2004.

Earlier this month, Chairman and co-Chief Executive Paolo Fresco said if the motor unit did not improve by 2004 it could be sold and "become a stronger member of the GM federation."

Fiat's shares closed down 1.5 percent at 12.53 euros on the Milan Stock Exchange but in after hours trading were 26 cents up at 12.56 euros.