But the EU executive said in a statement that within six months it must be presented with a restructuring plan for the entire group.
Approval of this guarantee was necessary “to ensure access to the market of Banque PSA Finance (the banking arm) and avoid contagion of the French banking system that would affect banks' cost of financing," the statement said.
Global sales at France's biggest carmaker, which is also Europe's second-biggest, dropped 16 percent last year to below 3.0 million units, as the company fell victim to a drop in demand in Europe, where it makes about 60 percent of its turnover.
Its credit arm, BPF, offers finance to potential buyers but has been unable to re-finance itself because of the group's difficulties.
The EU statement added that "given the aid benefits not only Banque PSA Finance but the PSA group in its entirety, France will have to present to the Commission a restructuring plan for the PSA group”.
"The Commission on this basis will be able to take a final decision on the aid," said the communiqué.
The group last week announced a massive write down of 4.7 billion euros for 2012, raising speculation that it might need further state help.
It is to announce annual earnings this week.