The European Commission has approved a £40 million aid grant for the Nissan UK factory at Sunderland, in north-east England.

The grant should boost the factory's chances of securing a £203 million contract to build the next-generation Micra, beating off French competition from a Renault factory in Flins, north west of Paris.

The Sunderland workers will be on tenterhooks until Nissan, in which France's Renault has a controlling stake, makes its decision in 10 days or so.

A Nissan spokesman in Tokyo said that the company has not yet decided where it will produce the next model Micra.

He was commenting on a report in Japan's Nihon Keizai Shimbun newspaper which said that the company would decide to keep production of the next generation Micra at Sunderland.

The newspaper suggested a decision would be taken as soon as this week.

A Nissan Europe spokesman also said no decision had been made, adding: "We would like to decide where we will produce Micra within this month."

Nissan has previously said that the aid won't be the deciding factor, but union officials believe it will improve Sunderland's chances.

Workers at Sunderland fear that the company will decide to build the new model at a Renault factory in France because of savings from producing in the euro-zone. The strength of the pound against the euro has made exports from England 30 percent more expensive in recnt years.

The Sunderland plant, the most efficient in Europe, currently employs around 5,000 workers, building the current Micra, Almera and Primera. Around 75% of the 330,000 built each year are exported, mostly to Europe.

Production staff have recently agreed a highly flexible shift system that will allow cars to be built seven days a week. In France, there is a 35-hour ceiling to the working. Workers there are reportedly unhappy at the prospect of extra work building the Micra.

The AEEU union representing Nissan employees at Sunderland welcomed the European Commission's aid package.

General secretary Sir Ken Jackson said: "The £40 million doesn't guarantee we'll get the new Micra but it's a very important part of the jigsaw.

"Sunderland is the most productive and flexible car plant in Europe. It doesn't make sense to send the Micra anywhere else."

"The government has offered funds and political support, now it is up to Nissan to recognise that Sunderland is the perfect place to build the Micra."

Winning the Micra contract is likely to guarantee the long-term future of the UK plant, which built its first cars in 1986.

Union officials think failure to secure the deal will be the beginning of the end for the factory as its work is gradually transferred to Renault and Nissan plants in Europe.