* Carmaker cuts 598 workers at Sao Jose assembly line * Gov't had warned against layoffs, citing tax breaks SAO PAULO, March 26 (Reuters) - General Motors Co cut 598 workers on Tuesday at a plant in Sao Paulo state where the automaker has drawn political fire for attempts to shut down what it calls an uncompetitive assembly line. The decision followed talks with union officials in January, in which GM agreed to invest about 500 million reais ($249 million) and keep the assembly line, which makes its 10-year-old Classic sedan, operating at its Sao Jose dos Campos plant. The line, which had about 1,800 workers before the layoffs, will continue to operate at least until the end of the year. The 598 workers who have been laid off had been on paid leave for several months. GM's entire Sao Jose dos Campos complex employed about 7,500 workers last year. The layoffs highlight carmakers' struggles in Brazil with climbing labor costs and cooling demand, which caused local auto production to contract last year for the first time in a decade. Productivity also plunged to a nine-year low in 2012, raising the politically sensitive specter of layoffs in a sluggish economy. Since last year, GM has faced pressure from President Dilma Rousseff to retain workers in exchange for tax breaks that helped prop up sales in the world's fourth-largest car market. GM's standoff in Sao Paulo is one of the highest-profile labor conflicts in Brazil, where a tight job market has forced companies to agree to steep wage increases. Unemployment has fallen to record lows despite two years of disappointing economic growth, helping to shore up the popularity of Rousseff and her leftist Workers' Party.