In a warning to Oliver Blume, VW’s chief executive, she said that staff could “break off the talks and do what a workforce has to do when it fears for its existence”.
Her remarks will be seen as a major escalation of the conflict between Volkswagen’s workers and management over the company’s future direction.
A Volkswagen spokesman declined to comment on the details of the company’s plans, but said: “This is the only way to finance further investments in the future from our own resources.”
Ms Cavallo said Berlin needed to urgently come up with a master plan for German industry to ensure it does not “go down the drain”.
A spokesperson for the German government said: “It is well known that Volkswagen is in a difficult situation. There is also a constant dialogue with both the employer and employee sides at Volkswagen.”
Volkswagen employs 680,000 people around the world. The company recently warned it would have to consider closing German factories for the first time in its history in order to get the business back on track.
Last month it was claimed that VW was looking at cutting as many as 30,000 jobs. At the time, the company refused to confirm the job cut figures.
Reports came after boss Mr Blume told employees that the company was abandoning a pledge not to make any lay-offs until 2029.