The US Supreme Court on Monday put a temporary hold on the Chrysler plan to exit bankruptcy protection under an alliance with Italian automaker Fiat.
Justice Ruth Bader Ginsburg signed an order postponing the closing of the plan backed by the US and Canadian governments to allow Chrysler to emerge from bankruptcy as a new entity.
The order calls for a stay "pending further order by the undersigned or by the court."
The move will allow the justices to consider whether to allow a full hearing of the legal issues -- a delay which Chrysler and US officials say could cause the plan to collapse.
A group of Indiana pension funds opposed to Chrysler's sale to Fiat filed the emergency appeal with the Supreme Court to halt the sale.
Without a stay, the deal could have been closed as of 2000 GMT Monday under a ruling by the US Court of Appeals in New York, which upheld the decision of a US bankruptcy judge.
"Absent a stay, the court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States government," the pension funds said in their application.
They argued that the sale is unconstitutional because it puts the rights of junior creditors ahead of the rights of senior lenders.
The three state pension and construction funds also said the US Treasury Department has overstepped authority granted by Congress under the Troubled Asset Relief Program (TARP), a 700-billion-dollar bailout intended for the financial industry, by financing Chrysler's restructuring.
A US government brief argued that "the only other alternative is the immediate liquidation of the company" which would be detrimental to all Chrysler's creditors.
Judge Arthur Gonzalez, in an order approving the Chrysler reorganization May 31, agreed to allow the planned tie-up with Fiat to be completed rapidly.
The judge said he agreed to the accelerated plan in view of arguments from an adviser to the White House auto task force that the automaker is losing 100 million dollars for each day the plan is delayed.
The plan gives Fiat a 20 percent stake in the Detroit group with a possibility of increasing that.
In return, Fiat will allow access to its technology to enable the US carmaker to make the smaller, greener cars that are increasingly in demand.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.