Car-maker Fiat will produce a new model in Serbia after months of standoff with Italian unions on the production of another popular model, the company's chief executive officer said yesterday.

Fiat cannot take on unnecessary risks with regards to its projects on Italian plants: We have to be able to make cars without seeing activity stop," Sergio Marchionne told daily La Repubblica.

Fiat would have produced the new L0 model in the northern Italian plant of Mirafiori, but for months of conflict with unions on moving the production of the Fiat Panda model from Poland back to the southern Italian plant of Pomigliano, Marchionne said.

La Repubblica said a total investment of one billion euros was ready for the Serbian plant, with Fiat forking over €350 million, the Serbian government €250 million and the European Investment Bank the remaining €400 million.

The company recently gave the go-ahead to a major investment to rejuvenate Pomigliano even after a third of the workforce in June voted against conditions tied to a critical investment plan.

Under the plan that was voted on, Fiat will move production of its Panda model from Poland -where labour costs are low - to Pomigliano, in the impoverished region around the southern town of Naples, on condition that workers accept longer hours and shorter breaks.

"Pomigliano is a work in progress, we decided to invest €700 million and if that will not work we will have other alternatives outside of Italy," Mr Marchionne said.

Fiat said it would double its car production in Italy from now until 2014, but after it clashed with one of the unions over the Pomigliano plan it is treading with care.

"We won't duplicate Pomigliano, but we will decide on a plant-by-plant basis. More than anything else, we need to convince unions to modernise industrial relationships in Italy," Mr Marchionne added.