Brussels  - France defied its critics and demanded European Union support for the bloc's crisis-stricken car industry at an EU summit in Brussels on Sunday, diplomatic sources said.

The call came a day after the EU's second-largest member backed down on a bail-out plan which would have obliged producers to give preferential treatment to French factories and suppliers.

French President Nicolas Sarkozy now wants the EU as a whole to take steps to keep the bloc's auto producers afloat, diplomatic sources told Deutsche Presse-Agentur dpa.

But his call looked set to fall foul of EU criticism almost immediately, with Swedish Prime Minister Fredrik Reinfeldt saying that the car industry in Europe "has overcapacity, so it needs to be downsized ... in a competitive manner, according to state aid rules."

Sweden is one of the main players in Europe's car industry, being home to firms such as Volvo and bankrupt GM subsidiary Saab.

It is the second time that Sarkozy has raised the theme at an EU meeting. He first made such a proposal at a formal EU summit which he chaired in Brussels on October 15.

And on Tuesday he called for the EU to promote the creation of "strong European industrial groups" to fight off competition from abroad, after a meeting with Italian Prime Minister Silvio Berlusconi.

Sarkozy's initial plan to give a multi-billion-euro loan to French car makers Citroen and Peugeot in return for a promise to keep French factories open and only use French suppliers sparked a furious storm in Europe.

Member states such as the Czech Republic and Slovakia, who are home to many French car factories, protested bitterly at the plan. The Czechs, who currently hold the EU's rotating presidency, called Sunday's EU summit to reject the idea of protectionism.

But on Saturday officials in the European Commission, the EU's executive, said that France had promised that any aid to the car industry would be given without demanding special treatment for French sites and suppliers.

On Thursday the commission drew up a list of measures which member states could use to boost their car producers. The Brussels-based body has also called for the bloc to spend up to 5 billion euros to support the development of cleaner engine technology in Europe.

German Chancellor Angela Merkel on Sunday said that the European Investment Bank should be given more funds so that it could sponsor the development of clean engines. dpa