Spain's new conservative government approved sweeping labour market reforms as part of a drive to revive a sick economy and solve Europe's worst unemployment nightmare - a jobless rate of nearly 23%.

The plan is designed to encourage companies to hire more people by cutting government-mandated severance packages and offering tax breaks for taking on young people.

But the fast-track approval of the measures generated violent clashes between riot police and protesters who say they will be stripped of cherished worker benefits.

More than 500 held a peaceful rally in Madrid's central Puerta de Sol plaza, but it turned violent after some tried to march toward parliament and were blocked by police.

Scuffles broke out, with officers using batons on demonstrators. At least eight protesters were detained and several officers sustained minor injuries, Spanish media reported.

Before the mayhem, protester Cristina Fernandez waved a placard saying "Every cut mutilates my rights" and said the labour reforms will not achieve the government's goals. To reduce unemployment, you need to create jobs, not simplify firing," said Ms Fernandez, a 52-year-old business consultant.

Spain is eager to restore investor confidence, satisfy the European Union and other international institutions by seeking major structural reforms in order to cut its deficit and ward off fears that it could follow Greece, Ireland and Portugal in seeking a bailout.

Under the new package of measures, Spanish companies facing hard times will be able to pull out of collective bargaining agreements and have greater flexibility to adjust an employee's schedules, workplace tasks and wages depending on how the economy and the company are doing.

The country's severance packages - long seen as among the most generous of many countries - will also be cut from 45 days of severance pay per year worked to 33 days.

A clause will also be introduced that will cut the amount of time companies can have their workers on temporary contracts with few benefits.