"There seems to be nothing left for us to do," said Roh Moo-hyun, the head of a seven-member mediation team dispatched by the ruling National Congress for New Politics.

Witnesses said the decision had prompted reinforcement of riot police around the Hyundai plant in the southeastern city of Ulsan and fuelled frustration and anger among thousands of striking workers and their families. They have been on strike and camped out in the factory complex for a month. "The atmosphere has stiffened quickly," one witness said.

Hyundai's management came under pressure to make more concessions after the union on Friday accepted the idea of some mass layoffs for the first time. The mediators proposed that both sides accept 250 to 300 layoffs.

The union agreed but the company did not. Hyundai offered only to reduce the number of layoffs from its previous proposal of 615 to 450. That offer in turn had been reduced from 1,538.

The mediators began their marathon face-to-face talks with Hyundai Motor's union and management on Thursday. The talks stalled on Saturday night.

Workers earlier this week erected a barricade, using equipment from the factory, and positioned new cars around a large tank of gasoline with tanks of liquefied petroleum placed nearby.

They also stockpiled steel pipes, petrol bombs and large nuts and bolts as weapons to counter possible attacks by police, who are equipped with water cannon, teargas and bulldozers.

Vice president of the party and a former labour activist Roh told reporters labour minister Lee Ki-ho would continue his efforts to persuade Hyundai's management to reconsider its layoff plans.

"We will wait until the company draws up a revised proposal together with Lee," said Roh. The union said in a statement that "an agreement will be impossible unless the management accepts all of the union's demands."

Hyundai officials said Lee, who arrived in Ulsan on Saturday, was currently talking to Hyundai Motor chairman Chung Mong-kyu and president Park Byung-Jae.

Striking workers have crippled production of the Ulsan factory in protest against the first mass layoffs since legislation making redundancies easier was passed in February. Allowing companies to make mass layoffs was one of the core conditions of last December's $58.35 billion bailout package led by the IMF.

South Korea's five employers' organisations issued a statement on Friday urging Hyundai workers to "calm down" as their "illegal activities were darkening prospects for the country".