Martin Winterkorn will stay on as chief executive of Volkswagen (VOWG_p.DE), the German carmaker said on Friday, in an unprecedented defeat for its powerful chairman, Ferdinand Piech.

Piech, the patriarch of Volkswagen's founding family, had provoked a showdown with Winterkorn by planting a comment in weekly magazine Der Spiegel last week that he had "distanced himself" from his CEO.

A top VW committee met in Salzburg on Thursday to try to resolve the row and gave Winterkorn its full backing.

"The executive committee places great importance on the fact that Martin Winterkorn will pursue his role as Chairman of the Board of Management with the same vigor and success as before, and that he has the full support of the Committee in doing so," VW said.

The six-member panel said it would propose extending Winterkorn's contract beyond its December 2016 expiry date at a board meeting next February.

VW shares rose over 2 percent on the news before paring gains to trade marginally higher.

Piech, the 78-year-old grandson of VW Beetle inventor Ferdinand Porsche, has a history of ending the careers of top executives with similar remarks planted in the media.

But this time the powerful works council chairman Bernd Osterloh, a member of the executive committee, stuck by Winterkorn, who has included labor representatives in the planning of vast cost cuts rather than excluding them.

"Martin Winterkorn is one of the most capable managers in the auto industry," Audi works council chief Peter Mosch who sits on the VW board told Reuters. "As chief executive of Audi and later VW, he has played a considerable role in the success of the VW group."