Crisis-wracked German auto giant Volkswagen said Monday that one of its plants would be sold off and converted to make defence equipment after car production ends there.

It is part of a sweeping overhaul at Europe's top carmaker, which is already pushing through the biggest job-cutting drive in global auto industry history as it battles Chinese competition, US tariffs and patchy electric car sales.

The announcement is also the latest tie-up between Germany's ailing auto industry and the defence sector, which is booming as countries build up their militaries to face an increasingly dangerous world.

VW's Osnabrueck plant, in northwest Germany, is to be sold to Tel Aviv-based investors Aurelius Capital and the German state of Lower Saxony, a major VW shareholder, with an initial air defence project planned for the Israeli firm Rafael Advanced Defence Systems.

They did not disclose the sale price.

"With today's agreement, we are taking an important step towards opening up a new industrial future for the site," Volkswagen CEO Oliver Blume said.

"Volkswagen stands by its responsibility for Osnabrueck," he said.

The company is seeking to slash production capacities as it struggles with weak demand, and had already decided in 2024 to end vehicle production at the factory by 2027.

The deal will guarantee that at least 1,200 out of 1,800 jobs are preserved at the factory, VW's works council said.

The project with Rafael will focus on the potential manufacture of systems and components for air defence systems for Germany and Europe, the carmaker said, without giving further details.

"We are building a long-term industrial relationship with our German partners, with the aim that the technology will be fully produced in Germany, in order to protect Germany and Europe," said Yoav Tourgeman, Rafael's president and CEO.

The Osnabrueck site, which dates back 125 years, currently produces the Volkswagen T-Roc Cabriolet as well as the Cayman and Boxster for its sister brand Porsche.

- 'Opportunities for the site' -

The long-term future of four other German factories of the VW group remains uncertain as it cuts costs.

Management and unions last week agreed to look at "alternative uses" for those sites as they signed off on a further 50,000 job cuts, bringing total losses across the group in the coming years to 100,000.

So far, the 10-brand auto giant, whose marques range from Audi to Seat, has managed to avoid any major factory closures in its home country throughout its 89-year history.

Greeting the deal, VW supervisory board member and IG Metall union leader Christiane Benner said the company was not off the hook for the hundreds of jobs not covered by the deal.

"Today's move opens up opportunities for the site, but does not relieve Volkswagen of its responsibility to create solid prospects for the remaining employees as well," she said.

The sale of the plant to Lower Saxony and Aurelius Capital helps VW avoid the potentially thorny issue of dealing directly with an Israeli defence firm, in this case one that makes the Iron Dome air defence system.

Qatar's sovereign wealth fund is Volkswagen's third-largest shareholder, holding about 10 percent of equity, and had reportedly been unhappy at the speculation that VW might directly make parts for Rafael.

Qatar does not recognise the state of Israel.

The announcement is the latest tie-up between the automobile and defence sectors. Mercedes-Benz said in June that it had a deal with drone maker Tytan Technologies to adapt some of its vans for mobile drone defence.

Mercedes has also reportedly held talks with French-German tank and weapons maker KNDS about potentially building armoured personnel carriers at a Mercedes plant.

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