German discount retailer KiK has agreed to pay an initial $1m in compensation for the victims and families of workers who died and were injured last year in a fire at a Pakistan factory used to make its clothing.

In an agreement signed last week with the Pakistan Institute of Labour Education and Research (PILER), the retailer also said it would negotiate a long term compensation package with other stakeholders.

The Ali Enterprises fire on 11 September 2012 killed 262 workers according to the official death toll, and injured at least 20 others.

The initial payment will be used to compensate the families of those victims who have not received any government compensation as the bodies have not been identified due to the severity of the burns and the decomposition of the bodies.

"KIK also expressed a willingness to compensate workers who faced severe injuries in the fire leading to disability and loss of future employment," said Karamat Ali, executive director of PILER.

"The remaining workers will be assisted in the next step after a compensation amount is agreed upon through a consensus between all stakeholders including employers and other international companies."

Ineke Zeldenrust, international coordinator at the Clean Clothes Campaign, said the full compensations and relief package is estimated to be at least EUR20m (US$26.7m).