The Transport and General Workers' Union (T&G) now plans a ballot on strike action after its members at the Ryton factory voted by a 90% majority not to accept the deal.

Peugeot described its offer as being worth an average of 7.3% over two years.

But the T&G disputes that, suggesting instead that the deal is worth between 3 and 3.5% in the first year and less than that in year two.

Tony Woodley wants more talks with the firm

Tony Woodley, T&G deputy general secretary, said the pay offer compares unfavourably to others in the industry.

He said: "The size of the vote for rejection is not unexpected.

"Peugeot's workforce are one of the most productive and flexible in the industry and Peugeot is one of the most profitable car companies in the UK, yet their workforce is amongst the lowest paid.

"The company's offer falls short of offers made at both Jaguar and Ford, and demonstrates an unacceptable clawback by increasing employees' pension contributions."

Mr Woodley added: "As a consequence the members have spoken and the union will be seeking authority for an industrial action ballot."

The union official also suggested that it "is in the company's interests to re-open negotiations".

A spokesman for Peugeot said the company is considering its next move.