Fiat Chrysler says it is withdrawing its $US35 billion ($A50 billion) merger offer for Renault.

A source close to the French car maker’s board said FCA make the decision after France tried to delay a decision on the deal.

Renault directors failed to reach a verdict on FCA’s May 27 merger proposal at a board meeting, which ran late into Wednesday night, the company said.

The board was “unable to take a decision due to the request expressed by the representatives of the French state to postpone the vote to a later meeting”, Renault said in a statement.

FCA revealed late last month that it had made a “transformative” merger proposal to its French-based rival. The deal would have created the world’s third-ranked largest car manufacturer.

Shares in car manufacturers, including in both companies, immediately rallied on the news.

The proposal was discussed at a meeting of the Renault board on Monday night (Australian time).

Collaboration between car manufacturers has taken on greater importance in recent years as they seek to build technological capabilities in pursuit of electrical vehicles, net connectivity and artificial intelligence for vehicles.

Car manufacturers are also under pressure from regulators, particularly in Europe and China, to come up with electric vehicles capable of meeting tougher climate change regulations.

FCA said earlier the deal with Renault deal would create a car maker selling 8.7 million vehicles annually with a strong presence across key regions, automotive markets and technologies.

The merged company would have generated 5 billion euros ($A8.1 billion) in estimated annual savings.

The French government is Renault’s biggest shareholder, with a 15 per cent stake. A spokeswoman said at the time that the government supported the deal in principle but needed to see more details.

-with AAP