The two sides say they have yet to finalise all the details, but the 50-50 merger is expected to provide significant cost savings.

That has raised concerns at Vauxhall, which employs 3,000 people in the UK, as it could be vulnerable to any restructuring.

Unions called for talks with France's PSA, which owns Peugeot and Citroen.

Fiat Chrysler, the Italian-US business behind Jeep, Alfa Romeo, and Maserati, has been looking for a big tie-up for years, believing that consolidation in the global industry is needed to cuts costs and overcapacity, and fund investment in electric vehicles.

It has tried previously to form alliances with General Motor and Renault.

A combined Fiat Chrysler-PSA will have a market value of about $50bn (£39.9bn) with annual sales of 8.7 million vehicles. The companies said there are no plans to shut factories, but UK unions are uneasy about the impact on Vauxhall.

"Merger talks combined with Brexit uncertainty is deeply unsettling for Vauxhall's UK workforce which is one of the most efficient in Europe," said Unite national officer Des Quinn.

"The fact remains, merger or not, if PSA wants to use a great British brand like Vauxhall to sell cars and vans in the UK, then it has to make them here in the UK."

Prof David Bailey, from the Birmingham Business School, told the BBC he was concerned about the prospects for Vauxhall's Ellesmere Port factory.

Major cost cutting "isn't going to be achievable without plant closures and significant job cuts".

Although Ellesmere Port is considered an efficient car plant, he believes the Italian government will be keen to keep Fiat's factories, and the French government is part-owner of PSA and so has an interest in protecting its own factories.

He said: "I have a real fear that if this merger goes ahead the likes of Ellesmere Port, which is a very efficient plant, could be sacrificed to get the sort of savings the company is looking for, especially in all the uncertainty over Brexit."

French Finance Minister Bruno Le Maire suggested his government would protect French interests. He welcomed the deal, saying it would give the two groups the critical mass needed to invest in cleaner technologies.

And he added: "The government will be particularly vigilant over preserving (the group's) industrial footprint in France."

The combined group, which will have its headquarters in the Netherlands, will have an 11-person board. This will include six members from Peugeot, including chief executive Carlos Tavares, and five from FCA, including chairman and billionaire John Elkann, a member of Italy's Agnelli family.

Exor, the Agnelli family investment company, will have the largest stake in the merged group. Other large shareholders are the Peugeot family, China's Dongfeng Motor and the French state.

Fiat Chrysler, having flirted heavily with Renault, is now getting serious with another French company. And on the face of it, this merger would make perfect sense.

The two companies could pool their resources, at a time when the industry as a whole is facing huge challenges due to the development of electric cars, automated driving, connected technologies, and shared use models. Fiat Chrysler really needs access to an electric car platform.

It would also combine PSA Group's strength in Europe with Fiat Chrysler's scale in North America.

But there's a catch. Look how many different interests are involved. PSA Group's leading shareholders include a Chinese state-owned company and the French government - which has already undermined those earlier attempts to bring FCA and Renault together. So things could get political very quickly.

Then there are the Agnelli and Peugeot dynasties - fully onside at the moment, but faced with diluted influence. Could they cause problems down the line?

And regulators will have to give the plan the green light as well. So, a merger might make sense, but it's far from being a done deal just yet.