Sao Paulo subway workers have announced an open-ended strike amid fresh protests against the World Cup, threatening preparations for the tournament as Brazil defended itself against criticism over chronic delays and soaring costs.

Workers decided to strike from midnight on Thursday after negotiations on a salary increase fell through.

They rejected an offer of 8.7 percent, insisting on at least 10 percent, said the president of their union, Altino Melo dos Prazeres.

The Sao Paulo metro is the main transport link to the economic capital's World Cup host stadium, which will host the opening ceremony and kick-off match on June 12, and the strike could pose a massive logistical headache for organisers.

"If there's money for the Itaquerao (the nickname of host stadium Corinthians Arena) and the World Cup, how is it they don't have any money for public transport?" said Prazeres, quoted by newspaper O Estado de Sao Paulo.

The strike will affect 4.5 million daily passengers and could unleash commuter chaos in the sprawling city of 20 million people, which was already hit by a paralysing bus drivers' strike last month.

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About 12,000 protesters rallied by the Homeless Workers' Movement marched on the Corinthians Arena on Wednesday, joining about 400 retired military police and their relatives who were calling for higher pensions.

Protesters say that more than $11bn being spent on the World Cup should have been used to help address urgent needs in education, health and transport.

President Dilma Rousseff, seeking re-election in October, said the sport's global governing body had assured Brazil that host stadiums would be built with private money.

But the government eventually realised private sector investment would not even cover "half a stadium," and provided most of the financing itself, Rousseff told journalists at a dinner on Tuesday at the presidential residence in Brasilia.

She insisted that the vast majority of public spending related to the tournament would benefit Brazil in the long-term and was not limited to the World Cup.