Motor giant General Motors has decided to sell its European arm, including Vauxhall, to Canadian car parts firm Magna, the German Chancellor has announced.

Angela Merkel told a news conference in Berlin the move was the outcome the German government had been working towards as it fought to preserve the firm's 25,000 jobs and four plants in Germany.

The decision is a blow to unions in the UK which have warned about possible job losses among 5,500 workers at Vauxhall's plants in Luton and Ellesmere Port if Magna was successful.

Sources had earlier suggested that the GM board was set to decide not to go ahead with a sale, which would have eased fears of UK job losses.

But later speculation said GM had decided to sell its European arm to Magna, which is backed by Russia's Sberbank, a move confirmed by the German Chancellor.

Business minister Pat McFadden said: "Our objective throughout has been to get the best possible outcome for the Vauxhall workforce and the production plants in the UK.

"We have been in close contact with all parties throughout, including GM in the US and Europe, and all the potential bidders.

"Now GM has announced its preferred bidder is Magna. We will now continue our discussions with Magna - they have told us of their commitment to continuing production at both Ellesmere Port and Luton and we will work to make sure we get the best possible outcome for the UK."

Unite's joint general secretary Tony Woodley said: "The uncertainty surrounding the ownership of Vauxhall is now over, but the uncertainty surrounding the long-term future of Britain's plants will continue. One of the alternatives could have been the unthinkable position of liquidation.

"Nevertheless, with Magna as the new owner, we need to make sure that British plants and people are not treated disproportionately during the re-structuring that will take place.

"With that in mind, the union and the Government will no doubt continue to negotiate with Magna. We expect financial support from the UK Government for Magna to be dependent on the job and plant commitments given by the company."