The Libyan government is to lay off 400,000 people - more than a third of its workforce - to ease public spending and stimulate the private sector.
Libyan Prime Minister Baghdadi Mahmudi told parliament the number of civil servants had become excessive.
Mr Mahmudi said redundant staff would receive three years' salary or a loan to start their own business.
He said he wanted to encourage the private sector to manufacture goods to compete with foreign imports.
Correspondents say almost all of Libya's foreign earnings are derived from oil production.
Libyan leader Muammar Gaddafi regularly criticises his own government for being too reliant on oil and on foreign imported goods.