Chinese workers found at a construction site for a factory owned by China's electric vehicle producer BYD in Brazil's Bahia state are victims of human trafficking, Brazilian labor authorities said on Thursday.

BYD and contractor Jinjiang Group have agreed to assist and house the 163 workers in hotels until a deal to end their contracts is reached, Brazil's Labor Prosecutor's Office said in a statement issued after meeting representatives from both firms.

BYD did not immediately reply to a request for comment. Reuters was unable to reach Jinjiang for comment outside usual working hours.

However, the companies have questioned the authorities' assessment, first announced on Dec. 23, that the workers were operating under "slavery-like conditions".

The parties are scheduled to meet again on Jan. 7, according to the statement. A proposed deal by labor prosecutors will be presented to the two firms.

A deal could clear BYD and Jinjiang from an investigation by labor prosecutors, but they could still face scrutiny from labor inspectors and from federal prosecutors, who have requested the sharing of the evidence so that "measures can be adopted in the criminal sphere", the statement said.

BYD has been building the factory in Bahia to produce 150,000 cars initially as part of plans to start production in Brazil, the Chinese EV company's largest overseas market, in early 2025.

The factory has become an important symbol of China's growing influence in Brazil, and an example of a closer relationship between both countries. BYD has invested about $620 million to set up the Bahia factory complex alone.

The reports of irregularities in Bahia could prove to be a major sticking point in their relations.

Brazil has long sought more Chinese investment. But China's model of taking Chinese workers to the countries where it invests presents a challenge to local job creation, a priority for President Luiz Inacio Lula da Silva.