German Government negotiator Count Otto Lambsdorff said: "I am certainly not purely optimistic. I don't know what will come out at the end, how we can proceed, whether we can proceed."

A lawyer representing many former slave labourers has threatened to pull out of the talks.

"A majority of us are ready to walk out," said New York-based lawyer Edward Fagan.

Talks on establishing a compensation fund for people forced to work for Nazi Germany during World War II are stalled over how much money survivors should get. The latest meeting - being held in Bonn - is the sixth in the negotiations.

Prior to Tuesday's talks, the German Government raised its own compensation offer by 50% from DM2bn to DM3bn ($1.6bn) - but the offer was rejected by survivors.

The lawyers representing the former slave labourers have said they have dropped previous demands for $12.5bn so that they can begin negotiations for a much larger sum.

They cited a historians' report which advised a sum closer to $50bn.

'Unrealistic' demands

Count Lambsdorff said in an interview on Tuesday that the lawyers' proposal was "totally unrealistic", "not helpful" and "does not take us very far".

"It can only hurt reaching a rapid and reasonable result," he said.

Up to 50 German firms which benefited from slave and forced labourers during World War II have pledged to contribute Dm4bn into a compensation fund.

The companies include such well-known corporations as Daimler-Chrysler, Bayer and Siemens.

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

'Coup de theatre'

Wolfgang Gibowski, the representative for German industry, said the firms were having trouble meeting their previous DM2bn offer and that the new demands for compensation were "completely unrealistic".

Mr Gibowski told the Berliner Morgenpost newspaper: "This is a coup de theatre which does not help the debate."

He also described a claim by Mr Fagan that German firms had informally raised their offer of compensation to DM10bn ($5.3bn) as "absolute nonsense".

Count Lambsdorff asked the firms to be more flexible. It would be a "great disaster" if the negotiations failed, he said.

Tuesday's discussions involve separate talks between Count Lambsdorff and German industry representatives, and a series of meetings involving US and German government officials, lawyers for the slave labourers and representatives of countries such as Israel and Russia.