The German Government is now offering Dm3bn ($1.6bn).

BBC Europe business correspondent Patrick Bartlett: " German companies say less than 1 million qualify for the fund"

"The government has moved, it has raised its offer by Dm1bn," Count Otto Lambsdorff, the government's chief mediator on the issue, told German radio.

Up to 50 German firms - including some of the giants of German industry such as Siemens, Volkswagen and Daimler Chrysler - which benefited from slave and forced labourers during World War II - have pledged to contribute a further Dm4bn into a compensation fund.

The fund was set up to prevent further legal action by survivors or their families.

German Government and industry officials will meet lawyers acting on behalf of over 2 million surviving victims for a new round of talks in Bonn on Tuesday.

Count Lambsdorff said it now was up to German industry to raise its contribution, but expressed doubt whether that was possible.

"The companies have said that they haven't even managed to collect the four billion that has been promised," he said.

Survivors want more

At the same time, lawyers representing slave labourers have announced they are withdrawing their demands for $12.5bn in compensation so that they can begin negotiations for a much larger sum.

"Our demand is withdrawn," said lawyer Edward Fagan at a Berlin news conference.

Mr Fagan cited a historians' report advising a sum closer to $50bn.

"We are beginning new negotiations according to what this report says," he said.

Until today, the German Government's position had been that no more money would be forthcoming.

Although the government accepts a moral obligation for compensation, it does not accept a legal responsibility.

'Industry's obligation'

"First of all, it's the obligation of German industry," said German Foreign Minister Joschka Fischer at the beginning of November.

Threatened with a series of lawsuits by survivors of Hitler's slave labour programmes, the firms have been negotiating for months to establish a voluntary compensation package.

Estimates vary, but between 700,000 and 2.5 million survivors could be eligible for compensation.