Industrial workers and employers in southwestern Germany struck a deal on pay and working hours on Monday night, in a hard-fought pact likely to set a benchmark for millions of workers across Europe's largest economy.

The deal between labour union IG Metall and the Suedwestmetall employers' federation foresees a pay rise of 4.3 percent from April and other payments spread over 27 months, IG Metall's Roman Zitzelsberger told reporters after 13-hour talks.

Some 900,000 workers are covered by the agreement, which could be extended to all of Germany.

IG Metall is negotiating on behalf of around 3.9 million workers in a critical sector for Europe's largest economy, pushing for higher pay and the right to temporarily switch to part-time hours.

Around half a million workers drawn from sectors as varied as carmaking, electrical and electronic goods or metal production downed tools last week in 24-hour "warning strikes" as talks made little headway.

Union bosses threatened an indefinite strike if their demands were not met, something that has not occurred in the sector since 2003.

A key concession is the right for more senior employees to cut their working week to 28 hours for a limited period of six to 24 months.

The reduced working week comes with a commensurate salary despite union demands -- but employees are guaranteed their full-time position when they return.

The concession is a partial win for both sides.

The union pushed for more flexible working conditions for employees during key life moments such as the birth of a child, looking after a relative or ill health.

Employers were determined to avoid continue paying full-time salaries to those who choose a limited period of reduced working hours.

"For too long work time flexibility has been a privilege of employers," union chief Joerg Hoffman said.

"From now on employees will have the right to opt for a reduced working week, for themselves, their health or their families," he added.

In a statement the employers federation said the deal would help staff "better balance work and private life" but added they were not willing to bow to the union's demand for financial compensation for those taking reduced hours.

The talks are under close scrutiny from other labour groups including civil servants whose contracts are up for renegotiation in the coming months.