The ranks of police, backed by tear gas, water cannon and bulldozers, began deploying at daybreak at South Korea's largest car factory in the southeastern city of Ulsan.

Some 5,000 workers and their families have been camping inside the sprawling plant since July 20th in protest against mass layoffs by the country's biggest automaker.

Under a torrential downpour, women clutching children stood by their striking husbands and chanted "save our jobs".

Union leaders exhorted workers holding lead pipes to stand firm.

It was not immediately clear why the police withdrew, or if they would be re-deployed. According to South Korean media reports the government gave the green light to police to evict the workers and their families on Tuesday.

The work stoppage has crippled Hyundai, along with its suppliers and contractors. The ministry of labour said on Monday the unrest at the plant had cost some 1.5 trillion won ($1.1 billion) in lost production.

Labour minister Lee Ki-ho met Union and Hyundai officials late on Monday in Ulsan in a last-ditch effort at mediation.

"He asked both sides to submit their offers today (Tuesday)in the morning. Taking the two offers into consideration, he will devise a mediation proposal which he said would require concessions from both sides," said an official at the labour ministry's Ulsan branch.

Union leaders said they would not be intimidated by a police show of force.

"I don't think the riot police intended to storm this morning," said Ji Yang-sun, a senior official with the Hyundai Motor Union in Ulsan.

"They were threatening us to see how we would react and hoping that some of us would leave the compound. Our wives and babies are here on the ground, and not one of us plans to retreat a single step. We will stay and guard our jobs," he declared.

Ji called the labour minister's visit a face-saving gesture on the part of the government.

"If he really meant to mediate, the riot police would not be threatening us while the government waits to hear our position," he said.

The plant ground to a halt a month ago because of union protests after Hyundai said it planned to lay off thousands of workers in line with International Monetary Fund demands for economic reform in South Korea.

The move by Hyundai Motor was the first major move to cut jobs since the National Assembly passed a law in February making it easier for companies to shed workers in a country accustomed to lifetime job security.

The government has also set up a fund that for the first time gives long-term unemployment benefits.

Hyundai last week offered to cut the number of workers to be laid off to 615 from an earlier 1,569 after many had applied for a voluntary retirement package, but the union rejected the offer.

The hardline Korean Confederation of Trade Unions said it would walk out of labour talks with government and business representatives scheduled for later on Tuesday and launch an anti-government campaign if police raided the Ulsan factory.