The JV between Toyota and China's state-owned Guangzhou Automobile Group (GAC) (601238.SS) laid off the workers over the weekend and offered them compensation, three workers, who declined to be named for privacy, told Reuters earlier.
The workers affected were hired by labour service companies and dispatched to work at the factory in the southern city of Guangzhou.
Toyota's JV in China, Guangzhou Toyota Motor Co, said in a statement to Reuters that it had prematurely terminated contracts for about 1,000 workers with labour services companies in light of recent production levels.
The company would provide economic compensation as required by law and earnestly explain the situation to those affected, it said in the statement.
The GAC Toyota factory has an annual output capacity of 1 million vehicles and employs around 19,000 people, according to its website. It produces models including Camry, Levin and bZ4X.
Toyota's move comes after peer Mitsubishi Motors (7211.T) said earlier in July it would cut staff costs at its Chinese joint venture with GAC to try to revive its fortunes.
Mitsubishi Motors Chief Executive Takao Kato told reporters during an earnings call on Monday that the company had not yet agreed with its local counterpart in China exactly how it would pursue the restructuring. The production of Mitsubishi's new Outlander model remained suspended, Kato added, describing the conditions faced by the company in China as "severe".
Japanese brands suffered the steepest sales slumps among automakers in China in the first half of this year, with their market share shrinking to 14.9% from nearly 20% a year ago, according to China Association of Automobile Association. Meanwhile, sales of Chinese brands accounted for 53% of the total.
Toyota has been counting on its electric vehicle (EV) models to revive sales in China, which fell 9% in the first six months. The company joined a price war started by Tesla in January and slashed the starting price for its bZ4X EV by 15% in February.
