After talks on the margins of the CeBIT IT trade fair in Hanover, Merkel -- whose country has fiercly opposed the plans -- said "a deal is envisaged with France on the European targets to reduce carbon dioxide from cars".

She added that a top level working group would be set up on the subject.

Sarkozy for his part said there would be a "common position from France and Germany in the coming days", adding: "We couldn't find more different positions than those of France and Germany" on this issue.

The leaders' remarks came after French and German environment ministers, meeting their European counterparts to discuss climate change in Brussels, warned their two countries were at odds on the European Commission plan.

"We are now at that typical stage of differences," said French Environment Minister Jean-Louis Borloo.

The row is over how to fix goals and penalties for Europe's automakers which include Germany, whose car industry tends to make bigger, and therefore more polluting cars, and France and Italy which generally produce smaller vehicles.

"It is difficult to support that heavier vehicles, which are more powerful, should have an international right to emit more than others," said Borloo.

Mattias Machnig, Germany's deputy environment minister, argued that "the small car segment has to do something in the coming years so that we can achieve the emission cuts in the mass market."

British Environment Minister Hilary Benn urged all sides not to polarise the debate, and at a press conference after the talks, Borloo played down the row.

"Everyone repeated their positions during the debate," he said.

"We will take up the discussion with the Germans. I plan to meet up with my German counterpart Sigmar Gabriel in Paris at the end of March."

Under the commission proposals, each automaker selling cars in Europe will have specific targets assigned to it with the aim of cutting CO2 emissions to a European average of 130 grammes per kilometre travelled for new cars.

Parts and fuel-makers will be tasked with shaving a further 10 grammes off the average with improvements to gearboxes and air-conditioning systems, tyre-pressure monitoring and the use of more biofuels.

The combined efforts are aimed at cutting average emissions by a quarter, to 120 grammes per kilometre on average from about 160 currently.

Countries such as Germany and Sweden which make big petrol-guzzling cars have fiercely opposed the plans. Major supporters include France, Italy, Spain and Romania, whose auto industries offer smaller, more fuel-efficient cars.

The average Porsche from Germany, for example, emits 282 grammes per kilometre versus just 145 grammes for a car from France's Renault or Peugeot-Citroen.

The penalties for non-compliance mooted by the EU's executive arm, would start in 2012 at 20 euros (30.35 dollars) per gramme of carbon dioxide over a target and climb to 95 euros in 2015.

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