The labor union of Hyundai Motor has threatened to suspend all engine output in the company's biggest production base from Tuesday, saying an employee set himself on fire to protest the company's alleged suppression of unionized workers.

The incident indicates labor issues remain a potential vulnerability for the strongly performing South Korean carmaker, although it avoided strikes for a third year in a row last year.

The worker and union member with the surname Shin was found in flames at a Hyundai engine plant in the southeastern city of Ulsan at around noon on Sunday, and is currently in critical condition at a hospital in nearby Busan, Hyundai's union said in a statement.

The union said in a separate statement that a factory manager had tried to unfairly control Shin after he reported problems with engine quality to management, citing files found on his computer.

Hyundai's management has not abandoned its outdated labor management policy, causing frequent conflicts with labor, the union said.

The union warned that it would suspend engine output throughout Hyundai's complex in Ulsan and refuse overtime and weekend work from Tuesday should the company fail to accept demand including preventing the repeat of incidents of alleged suppression or excessive monitoring.

A company spokesman denied any improper conduct in the treatment of unionized workers.

Employees at the plant where Shin worked already suspended production after the incident.

The police are investigating (Shin's) case and we are keeping an eye on the probe, the spokesman said.

He said the suspension so far would not affect engine production as the plant, which produces diesel engines for Hyundai's Veracruz and Kia's Mohave SUVs, was relatively small and inventory and other plants could compensate for stoppages.

(Reporting by Hyunjoo Jin; Editing by Jonathan Hopfner)