China was forced to halt the privatisation of a state-owned steel firm after a protest by thousands of workers who said they had not received fair pay, state media reported.

It was the second time in less than a month that workers have been able to halt the privatisation of a Chinese steel plant as Beijing tries to overhaul the sprawling and inefficiently run industry.

Last month, a crowd assaulted and killed an executive who was managing the acquisition of state-owned Tonghua Steel in northeast Jilin province.

The latest protest was in central Henan province, where workers at state-owned Linzhou Steel Corporation opposed a proposed take-over by Fengbao Iron & Steel Co, a private firm, the official Xinhua news agency reported.

The demonstration began on Tuesday and only ended on Saturday after a government mediation team promised to temporarily call off the deal, Xinhua said.

In a sign of official concern, the state-backed All China Federation of Trade Unions posted a notice on its website, saying that corporate restructuring plans would be deemed invalid without express approval from workers.

It said that a lack of openness had aroused workers' suspicions and caused the outbursts of violence.

The trade union federation is unlikely, though, to fight more aggressively for workers' rights, as its branches are dominated by management and local officials.

Separately, Xu Guangchun, Communist Party Secretary in Henan, called on all levels of officials to ensure proper consultation with workers and to evaluate risks to social stability before giving the go-ahead for any corporate restructuring.

The Linzhou Steel workers demanded higher compensation for those who had lost jobs as well as unpaid wages over the course of the firm's restructuring, which began in August 2008, the news agency said.

Linzhou Steel, established in 1969, has 5,122 workers and pensioners on its regular payroll, of whom 2,995 were still working, Xinhua said. The plant produces roughly 400,000 tonnes of pig iron and 100,000 tonnes of cement a year.

China, the world's top producer and consumer of steel, has been trying to consolidate the industry, but many local governments have resisted top-down mergers over fears about throwing people out of work and sparking unrest. - Reuters