Berlin agreed on Monday to grant US chip giant Intel subsidies totalling almost a third of the cost of a 30-billion-euro (HK$256-billion) German plant in a controversial decision following a months-long row.

Government sources told AFP that Berlin would provide 9.9 billion euros to support the project in the eastern city of Magdeburg, up from a figure of 6.8 billion originally agreed.

Intel unveiled the mammoth project, the centrepiece of a European investment drive, in March last year.

The EU is seeking to boost production of semiconductors, used in everything from fighter jets to smartphones, and reduce reliance on Asia after pandemic-induced shortages hit some industries, and Russia's war with Ukraine brought home the risks of over-dependency.

Construction work on the Intel project was due to begin in the first half of this year but it stalled after the Ukraine war sent inflation soaring.

German officials and the company were then locked in talks for months, but both sides finally signed a deal Monday, which included the increased subsidies.

The project, now projected to cost a total of 30 billion euros, had originally been expected to cost 17 billion, the government sources said.

Chancellor Olaf Scholz, at a signing ceremony with Intel CEO Pat Gelsinger, hailed the agreement as "the single largest foreign direct investment in German history".

It represents "an important step for Germany as a high-tech production location -- and for our resilience," he said.

Gelsinger said the project would help forge a "balanced and resilient supply chain for Europe".

The project will involve two semiconductor manufacturing sites, with the first to enter production in four to five years.

It is expected to create 3,000 permanent high-tech jobs at Intel, and tens of thousands of additional jobs across the industry ecosystem, the company said.

Under the new agreement, Intel will deploy more advanced technology at the sites than originally planned.

The huge state support has proved controversial in Germany, however, with newspaper Sueddeutsche Zeitsung criticising the "unbelievable amount of subsidies". (AFP)