Italy intends to spend $US1.7 billion on measures to help the car industry, making the cash conditional on companies like Fiat keeping plants open.
The total package of over 2 billion euros ($US2.56 billion) is the latest attempt by the government to boost the economy amid a global financial crisis.
The plan was approved in a decree issued on Friday.
Prime Minister Silvio Berlusconi said carmakers have been told to maintain their plants in Italy and pay auto parts suppliers.
Fiat SpA previously warned that 60,000 jobs could be at stake if the government did not act. It has already closed plants across the country for short periods to cope with lower demand.
The industry employs 375,000 people either directly or indirectly in Italy.
Fiat owes almost 6 billion euros. New car sales in Italy dropped 33% in January.