General Motors has cancelled plans to sell off its European division, Opel, as well as the UK Vauxhall, to a venture led by Canada's Magna. The US giant said the board made its decision because of "an improved business environment over the past few months, and the importance of Opel/Vauxhall to GM's global strategy".

The announcement was the latest twist in a saga that has led to months of uncertainty for Opel after the struggling US automaker underwent a government-backed bankruptcy reorganisation. The European unit, which was to be shed under the plan, turned into a major controversy as governments in Europe and the US clashed over which portions of the firm would be saved and what types of aid would be offered.

The British government said it would work closely with GM, but the announcement has dealt a blow to German Chancellor Angela Merkel as she was leaving Washington where she held talks with President Barack Obama. Ms Merkel had given 4.5 billion euros financial backing to the Magna deal, perceiving it as the route most favourable for saving German jobs. A spokesman for the German government has said Berlin wants GM to pay back 1.5 billion euros bridging financing extended by German banks.