The BBC's William Horsley reports on Volkswagen's decision

The company, which used slave labour during the Nazi dictatorship, has already made limited payments to former slave labourers but details of the new offer have not yet been released.

The long and bitter dispute over a compensation fund came to a head last week during intensive talks in New York attended by the US and German governments, representatives of claimants and German banks and firms.

The companies want on-going lawsuits against them dropped in return for the setting up of a fund to compensate slave labour victims.

Slave labour policies

An estimated one million Jews, Slavs, gypsies and others died from cruel treatment as slave workers in the Nazi era.

Between 1941 and 1945, Volkswagen employed about 7,000 slave labourers making mines, V-1 missiles and anti-tank rocket launchers.

Overworked and underfed, many of the workers died in the appalling conditions in hidden military complexes.

The latest lawsuits coupled with the recent settlement of actions against Swiss banks and the commitment of the new German government to an industry-backed Holocaust fund have all added pressure to firms involved in Nazi slave labour.

German banks including Dresdner Bank and Deutsche Bank have also agreed to settle, the latter recently revealing that it had lent money to companies involved in the building of the Auschwitz death camp.

The World Jewish Congress has also threatened to block Deutsche Bank's $10bn bid to buy Bankers Trust, one of the US's largest banks, unless reparations for Holocaust survivors are agreed.

In the coming week the German Chancellor Gerhard Schröder meets the heads of the main companies concerned.