Alstom said it wanted to centralise its train production at a site 200 kilometres further north in Alsace and promised to offer the 400 workers in Belfort other jobs.
But after a cabinet meeting on Monday, Transport Minister Alain Vidalies said production at the site would now continue "in the same proportions as the current level".
Meanwhile speaking this Tuesday, junior Industry Minister Christophe Sirugue said Alstom had not informed the French State of its problems prior to its public announcement.
Belfort is a symbol of French industrial prowess. Alstom's first steam train was produced at the site in 1880. The prospect of job losses at the factory would have been of concern to the Socialist government, with presidential and legislative elections scheduled next year.
The French government has a 20-percent stake in Alstom.
Vidalies described the company's threat to close the factory as "incomprehensible" because there was a chance of landing new contracts in the near future.
Hundreds of people protested in front of the Belfort factory on Monday, not reassured by the government promises to save the 400 jobs under threat.
"If the politicians manage to do something then great," said one Alstom worker who preferred to remain anonymous. "But I' m not expecting much because it's politics... because in the past they've never performed miracles," the worker added.
The town's mayor Damien Meslot said that besides those who would be directly affected by cuts if the factory was closed down a further 1,200 indirect jobs would go.