Italian Prime Minister Matteo Renzi made important progress with his reform agenda on Friday when his cabinet gave final approval to key parts of his overhaul of the labour market, which will now take immediate effect, reports Reuters.

After a four hour meeting, the cabinet approved the legislative decrees, which ease firing restrictions for large private sector firms and aim to reduce the use of temporary contracts.

Mr Renzi said the new rules can boost job creation in a country that has one of the lowest labour participation rates in the Eurozone and where young people are hired almost exclusively on temporary contracts with few rights or labour protection.

"This day has been awaited for many years and it has been awaited by an entire generation," he told reporters.

Mr Renzi estimates that in the next few months at least 200,000 people on temporary contracts  would switch to a new type of permanent contract offering compensation in case of dismissal that gradually increases with seniority.

The new contract, along with the reduction of job protection for workers in large companies and an extension of unemployment benefits for temporary workers, were the main legislative changes approved by the cabinet on Friday.

These had already been given a green light by parliament but required a so-called activating decree to pass into law.

Other aspects of the reform, aimed at streamlining the many types of temporary contracts, overhauling the current system of job centres and training, and further revising unemployment benefits, are still before parliament.

Mr Renzi's Jobs Act has been fiercely contested by trade unions and the left wing of his own Democratic Party, who say the easing of firing restrictions undermines basic workers' rights.

On the oSome employers' bodies, however, wanted it to go much further by including the public sector and changing the terms of those already in work, rather than just new hires.

Most economists say the new rules go broadly in the right direction, but that Italy will only be able to significantly cut record high unemployment if it can revive its economy, which has not grown for more than three years.

Under the reform, companies with more than 15 employees will, from now on, be able to fire workers for business reasons without the risk of having to reinstate them even if the dismissal is ruled unlawful.

Unjustified dismissal will require payment of compensation but the worker will not be able to get his job back as is the case at present. The change will not affect the public sector or people already in work,  only new hires in the private sector.

The current rules allowing for reinstatement do not affect companies with fewer than 16 employees, which account for close to half of Italy's workers.