MILAN (Reuters) - Automaker Stellantis' output in Italy is set to drop below 500,000 vehicles this year from 751,000 in 2023, the FIM-CISL union said on Wednesday, citing persistently soft market demand, especially for electric vehicles.

The projection pointed to an output level well below the target that Stellantis, whose brands include Fiat and Alfa Romeo, is discussing with the Italian government, of one million vehicles - for both passenger cars and vans - by the end of this decade.

The data reinforced fears of structural overcapacity in Europe for local automakers amid mounting pressures from Asian rivals. The region's top manufacturer Volkswagen last month announced it could close factories in Germany for the first time.

"If the trend seen in the third quarter was to be confirmed in the last quarter of the year, the production (situation) would become even more serious," with fewer than 300,000 cars and some 200,000 vans produced, FIM-CISL's head Ferdinando Uliano said.

Uliano was presenting the union's quarterly report on the automaker's production in the country. Stellantis was not immediately available for comment.

Uliano said production volumes in Italy were not helped by delays in the government's new purchase incentive scheme, which was announced at the beginning of this year but introduced only in June.

"We think that the lack of incentives in other European countries has had a negative impact," he said.

All six Stellantis factories in Italy saw output decline in the first nine months of the year, with an overall 41% drop to 387,600 vehicles, FIM-CISL said.

In the historic Mirafiori plant, in Turin, output declined 68% in the first nine months. Production of the electric Fiat 500 city car, the main model made there, has been repeatedly halted this year and operations are currently suspended until Nov. 1.

(Reporting by Giulio Piovaccari, editing by Alvise Armellini and Keith Weir)