Volkswagen AG Chairman Ferdinand Piech may have lost the battle to oust Chief Executive Martin Winterkorn, but the war isn’t over, reported The WSJ.

Key members of VW’s supervisory board Friday proposed extending Mr. Winterkorn’s contract, one week after Mr. Piech expressed a lack of confidence in the CEO and threw his future into doubt. The supervisory board group, its executive committee, said Mr. Winterkorn was the “best possible” leader for Volkswagen and had its full support.

The committee proposed that the supervisory board extend Mr. Winterkorn’s contract in February next year. The move was welcomed by a major Volkswagen shareholder, the state of Lower Saxony, which holds 20% of Volkswagen’s voting rights and two seats on its supervisory board.

“The committee’s conclusion provides the clarity Volkswagen needs,” state Premier Stephan Weil said. Lower Saxony has confidence in Mr. Winterkorn and wants to continue working closely with him, he said, praising the company’s “excellent development” in recent years.

The backing is seen as a defeat for Mr. Piech, who couldn’t convince the committee to withdraw support for Mr. Winterkorn, according to people familiar with the matter.

Mr. Piech and five other members of the VW supervisory board’s executive committee met with Mr. Winterkorn on Thursday at Mr. Piech’s private estate in Salzburg, Austria, in an attempt to resolve the leadership crisis.

Mr. Winterkorn, 67, had signaled his determination to serve out his term to the end of next year. Late Thursday, he was able to sway members of the supervisory board with his strategic plans, according to a person familiar with the content of the meeting.

But Friday’s endorsement leaves unresolved whether Mr. Winterkorn will eventually become the head of the auto maker’s supervisory board when he finishes his term, as had been planned. Mr. Piech is set to head the supervisory board until the spring of 2017, meaning he could have two years to push his agenda.

Few observers familiar with VW were willing to call Mr. Piech’s setback an absolute defeat.

“Mr. Piech isn’t easily dissuaded from his ideas,” as previous clashes have shown, said Stefan Bratzel at the Center of Automotive Management at Bergisch-Gladbach’s University of Applied Sciences.

It may be business as usual in the near term, said Arndt Ellinghorst at Evercore ISI, but a debate on leadership isn’t likely to subside entirely.

“It seems (Mr.) Piech has lost the battle and an apparent desire for change at the top of VW,” Mr. Ellinghorst said. “What is not clear, however, is whether this puts an end to the war.”