The scheme will begin on February 11 and the company said it will continue to produce the Fiat Punto during the restructuring, using one of the two production lines at a time.

"Important works need to be carried out at the plant. The aim is to bring all employees back to work as quickly as possible," Fiat said, adding that the modernisation would be done in time to launch two new models in the second half of 2014.

In December, the Italian carmaker said it planned to invest 1.0 billion euros ($1.3 billion) to produce a new, small 4x4 Jeep and a new Fiat 500 at the southern Italian plant from 2014.

Trade unions said they thought the scheme would last two years, winding up at the end of 2014.

Fiat head Sergio Marchionne brushed off concerns sparked in Italy over the lay-offs.

"We are in the process of installing new production lines to make the new models. We will continue to produce the Panda. I can't see what the problem is," he told journalists.

In June 2010, the Melfi factory was the scene of high tension as some 5,000 employees were forced to accept tougher working conditions in exchange for bringing production of the Panda back to Italy from Poland.

The labour agreement which marked a historic turning point for Italy's biggest automaker served as the model for a deal at the Mirafiori plant in Turin, as well as one on Tuesday which affects all 86,000 workers at Fiat and Fiat Industrial in Italy.