The mid-sized luxury car is one of the firm's best sellers

The threat will stand unless workers at the Sidnelfingen factory achieve 500m euros a year in cost savings.

The firm said labour costs must be brought in line with those at factories in the north German city of Bremen and in East London, South Africa.

Otherwise, production of the new model would be moved to those plants.

Mercedes-Benz chief Juergen Hubbert said that "the Sindelfingen factory is not the most productive plant, by a long way".

The company wants its German workers to cut paid breaks and extra pay for late shifts and weekends before it will guarantee investment in further production.

Production of new versions of the C-class will not start until 2007 but the investment decisions are being made now.

Day of protest

Workers have offered to forego a contractual rate of 2.8% slated for 2006, which would save 180m euros, but have protested at deeper cuts.

Mr Hubbert said workers in Bremen had fewer holidays and less burdensome rules on paid break time than their counterparts at Sindelfingen.

"The cost disadvantages are serious," he said.

Daimler sold about 281,000 units of the C-class last year, making the Mercedes mid-sized luxury car one of the brand's two top selling lines.

On Saturday, the company suffered a production loss of more than 1,000 vehicles, according to the works council, after some 12,000 workers in Sindelfingen failed to show up for their shift to protest against the cost-cutting plans.