By Gilles Guillaume and Laurence Frost

PARIS (Reuters) - Struggling French automaker PSA Peugeot Citroen is increasing its full-year savings target and freeing capacity at a factory near Paris in preparation for the closure of its Aulnay plant, union officials said on Thursday during talks with management.

Chief Executive Philippe Varin told workers' representatives that the car maker's target to cut 1 billion euros ($1.25 billion) "will not be enough", senior Force Ouvriere union official Jean-Francois Kondratiuk told Reuters.

Peugeot spokesman Pierre-Olivier Salmon declined to comment.

The automaker is also briefing workers on plans to reduce production of the Peugeot 208 small car at Poissy, west of Paris, Kondriatiuk said. The move is seen as preparing the way for the closure of Peugeot's long-threatened factory in the northern suburb of Aulnay-sous-Bois.

(Reporting by Laurence Frost)