(Adds government comment, context)
MADRID, Feb 13 (Reuters) - Spain's government on Friday approved a 4 billion euro ($5.17 billion) package to support its ailing car industry and protect jobs after a string of layoffs and stoppages at vehicle plants.
Spain said the support package was the second largest in Europe, in terms of total funding, ahead of a 2 billion euro programme in Germany and 3 billion euros in investment by the British government.
Most of the measures approved on Friday had been previously announced as part of Spain's 70 billion euro economic stimulus plan.
France this week offered a 6 billion euro state loan for Renault and PSA Peugeot-Citroen and ran into criticism from EU allies who said the move amounted to protectionism.
Spanish Industry Minister Miguel Sebastian said Spain had to protect its car sector, which is almost entirely foreign owned.
He said the government support would depend upon carmakers' ability to guarantee jobs within the industry and would not grant aid to any company that has laid off workers permanently without first reaching agreements with unions.
Many job losses within the industry in Spain have been after agreements between union representatives and company heads under the condition workers are re-employed within an agreed time frame.
Renault has announced temporary lay-offs for about 10,000 workers at its four factories in Spain and cut 400 temporary workers at its factory in Palencia, while newspaper La Vanguardia said Seat would suspend 5,300 workers' contracts.
"The auto sector employs 300,000 people, it drives 6 percent of GDP, and we are talking about a sector that provides around 20 percent of exports," Sebastian said at a news conference following the government's weekly cabinet meeting.
Under the Spanish plan, the government will channel 1.2 billion euros in state credit to boost car purchases during 2009 and 2010.
Spain will also earmark 800 million euros to help car and vehicle part makers upgrade plants and boost value-added production.
A further 950 million euros will go towards improving rail, road and sea distribution systems and 320 million euros towards research projects, over 2 years. The government will give 100 million in tax breaks on research spending by firms.
The remainder of the 4 billion euro package is made up of state credit lines to small and medium sized firms in the vehicle sector.
Spain has been hit harder than neighbours by the global economic crisis as the collapse of its decade-long house building boom coincided with the credit crunch.
Spanish car sales fell 28 percent to 1.16 million in 2008, the largest-ever yearly decline, and could fall to 900,000 in 2009, according to industry group ANFAC.
Sales have fallen amid credit restrictions and a rise in unemployment to the highest level in the European Union at 14.4 percent in December.
(Reporting by Andrew Hay; editing by Ben Harding)