The union agreed to accept layoffs of 250 to 300 workers, said a statement from a ruling party mediation team in the southeastern city of Ulsan.

But, Hyundai Motor rejected the mediation's team proposal. The company offered to reduce the number of layoffs to 460 from a previous offer of 615, the statement said. That offer in turn had been reduced from 1,569.

The talks had recessed and were scheduled to resume late on Friday, Hyundai Motor officials said.

"The company welcomes the fact that the union has recognised the necessity of layoffs," said Min Kyung-hwan, spokesman for Hyundai Motor. "But we want the union to be more cooperative in saving the company from the current economic crisis."

A union spokesman expressed disappointment.

"It's absurd the company rejected a mediation draft by the ruling party. We believe we've made enough concessions."

But the union would continue talks, he added.

Striking workers have occupied the Ulsan factory since July 20 in protest against Hyundai's decision to cut jobs -- the first mass layoffs since legislation was passed in February making it easier for companies to make major work force reductions.

Allowing companies to make mass layoffs was among the core conditions of last December's $58.35 billion International Monetary Fund-led bailout package.

About 15,000 riot police have been deployed around the factory this week, preparing to evict some 5,000 workers and their families who have barricaded themselves inside the sprawling automotive complex.

Both sides agreed on Friday to avoid violence.

"Hyundai's union and management have agreed to resolve this issue through dialogue and negotiations to overcome the current economic crisis," the mediators' statement said.

Mediators talked through the night with Hyundai Motor chairman Chung Mong-kyu and Hyundai Motor Union president Kim Kwang-sik.

The union wants the remainder of the workers who have been given layoff notices to go on unpaid leave for a year during which time they would get six months of job re-training.

The company has not agreed to that.

The mediation team has also proposed the establishment of a fund, which both union and management would contribute to, that would "maintain employment stability". The union had accepted the idea but management had not, the statement said.

The standoff had been moving toward an unhappy climax after workers erected a barricade, using equipment from the factory, and positioned 60 new cars around a large tank of gasoline with tanks of liquefied petroleum placed nearby.

They had also stockpiled steel pipes, gasoline bombs and large nuts and bolts for hand weapons, witnesses said.

Riot police, backed by water cannon, teargas and bulldozers, remained deployed around the factory on Friday.

The labour ministry has said the work stoppages at Hyundai Motor have cost the company and its contractors some $1.2 billion in lost production and badly needed exports.