The new rules will permit companies to add hours to an employee's schedule and change rules for compensatory days off.

It also increases the number of overtime hours allowed each year.

Mr Sarkozy was elected in May last year after campaigning on the motto 'work more to earn more'.

His reasoning is that the decade-old 35-hour work week has reduced the nation's competitiveness and set back economic growth.

The vote in the National Assembly late on Wednesday followed Monday's adoption of constitutional amendments, pushed by Mr Sarkozy, by Lower House lawmakers and senators.

The changes, which passed by a one-vote margin, give lawmakers a voice in presidential appointments and military deployments while allowing the President to speak in Parliament.

The French jobless rate fell to a record low of 7.5 per cent in the first quarter of this year.

Mr Sarkozy has pledged to cut the unemployment rate to 5 per cent by 2012, the year that he says he will balance the budget.

The 35-hour work week, brought in by a socialist government 10 years ago, was aimed at cutting unemployment.

The French statistics institute Insee said the move created 350,000 new jobs between 1998 and 2002, but at the cost of billions of euros in state aid to companies.

Public opinion polls show the French still view the 35-hour work week as a progressive measure that they do not want to part with.

The new law maintains the working week at 35 hours but gives businesses the right to negotiate directly with employees to decide their working hours.

Blue-collar staff working more than 35 hours a week will be paid an additional 25 per cent an hour, and companies will pay no employment taxes for the extra hours.

This year, the government also announced more stringent rules on eligibility for unemployment benefits.

Job-seekers will have their unemployment benefits stopped if they turn down a certain number of 'reasonable' job offers.

Another controversial measure approved by the Senate forces schools to look after children on school premises when teachers are on strike.

It also obliges workers to hold 'preliminary negotiations' with employers before launching any strike action.

Critics say the law undermines the right to strike.

The Senate also approved an economic Bill dubbed the Law on the Modernisation of the Economy (LME). It has a series of measures to boost economic growth and purchasing power while curbing inflation and keeping state costs to a minimum.

Economy Minister Christine Lagarde said the LME could help boost purchasing power by a possible 1,000 euros (S$2,100) per year and per household, starting next year.

The government also hopes the reform will create 50,000 jobs by the end of next year and increase economic growth by 0.3 percentage point each year.

BLOOMBERG, AGENCE FRANCE-PRESSE