Fiat is to buy the US government's 6% stake in Chrysler, which will give the Italian carmaker a majority share in the company.
In a statement, Fiat notified the US Treasury on Friday that it was exercising its option to buy the government's share.
After Chrysler emerged from bankruptcy protection in 2009, Fiat agreed with the US government to share technology and management in return for a 20% stake and has quickly built that up.
Buying out the government would give Fiat 52% ownership of Chrysler.
Fiat said the price will be negotiated within 10 business days.
The BBC reports the stake is likely to increase to 57% by the end of the year.
On Tuesday, Chrysler said it had repaid $US7.6 billion in US and Canadian government loans, six years ahead of schedule.
Earlier this month, it reported a profit of $US116 million in the first three months of the year.