As expected, Volkswagen has confirmed that it will produce a small Audi at its plant in Brussels meaning fewer job losses there than previously announced.

Belgium's prime minister, Guy Verhofstadt, told a news conference after meetings with VW management and union leaders that up to 3,000 workers would be needed, with exclusive production of about 100,000 A1 cars per year in the Belgian capital from 2009 to 2016.

Verhofstadt said his government had not offered state aid for the affected plant, but it would provide other unspecified new incentives for industry.

The prime minister, who met VW Chairman Ferdinand Piech and Audi chief and future VW chief executive Martin Winterkorn today, added that Volkswagen's top management would return to Brussels in January to finalise a deal with unions.

Industry sources says the new compact car will be an extremely sporty small car including all-wheel drive, possibly positioned against the New Mini.

Workers blockaded the Brussels plant last week in a bitter protest sparked by VW's announcement of plans to axe 4,000 workers and shift production of the Golf to its German factories.