Nearly 6,800 jobs among group employees and subcontractors are at risk.
The group announced to unions at a meeting Wednesday that 800 temporary positions would be cut in France by the end of the year, a union source said.
For 2012, the company said, another 1,000 manufacturing jobs would be cut through voluntary departures, up to 2,500 non-production positions would be eliminated and another 2,500 jobs were expected to be lost by ending outsourcing contracts.
The cost-cutting programme comes after the company announced that sales in its cars division fell 1.6 percent to €9.3 billion ($12.94 billion) in the third quarter.
However, overall sales rose 3.5 percent to €13.45 billion.
"The competitive environment has become more challenging due to pricing pressure, which has intensified in Europe since September," the company said in a statement.
"In this tougher environment, recurrent operating income for the automotive division is now expected to be close to break-even for the full year," it said.
It also noted "negative impacts over the full year of €250 million from the aftermath of the (March earthquake) disaster in Japan and €700 million from higher raw materials prices."
In a separate statement after the union meeting, PSA said the job cuts "are designed to streamline the group's organisational structures or to adjust project budgets, particularly in sales, marketing, information technology and research and development."
The company, France's largest automaker and Europe's second-largest after Germany's Volkswagen, employs more than 205,000 people around the world, including 100,000 in France. It employs 167,000 people in total in Europe.
The new plan comes on top of a programme announced in 2009 that aims to save a total of €3.7 billion.
CGT union representative Bruno Lemerle slammed the plan as "scandalous."
"Logically when the results are good, the company should employ people, try to develop," Lemerle told AFP, pointing to the increased overall turnover figure.
"Our workload is excessive as it is, we don't need a reduction in the workforce," he said.
With two huge manufacturers, PSA and Renault, France's auto industry is key to the country's economy and accounts for around 10 percent of the national workforce.
PSA chief Philippe Varin met French Industry Minister Eric Besson after the announcement and insisted that the group's manufacturing presence in France was not in question, the ministry said.
PSA "specified that the decisions announced today do not call into question the PSA group's industrial presence in France," the ministry said in a statement.
The company said it expected growth in the European market to stabilise this year, but for sales to grow seven percent in China, six percent in Latin America and 30 percent in Russia.
The company also said on Wednesday it plans to make new investments to double its production capacity in Brazil.