Intel Corp. (INTC), the world's biggest maker of computer chips, said Monday it plans to build an advanced $3 billion semiconductor production plant in Arizona that will begin operation within two years.

In a statement, Intel said it planned to construct the new 300-millimeter (12-inch) silicon wafer (search) fabrication facility, deemed "Fab 32," as the third chip plant in a three-factory site in Chandler, Arizona.

Intel said construction will begin immediately on the $3 billion project. Production of the leading-edge microprocessors is slated to begin in the second-half of 2007 on 45 nanometer process technology, it said.

Bob Baker, Intel's senior vice president in charge of manufacturing, said the decision to locate the plant in Arizona follows the recent passage of a tax incentive plan there. He declined to quantify what incentives Intel stands to receive.

In May, the state changed its sales tax law for companies investing $1 billion or more to make it easier for capital-intensive employers such as Intel to build plants, Baker said.

A spokesman for the Arizona governor's office was not immediately available to comment on any other incentives.

Wafers measuring 300 millimeters across offer twice the capacity of older, 200-millimeter, or 8-inch, wafer technology. Intel is moving to convert older wafer plants to 300 millimeter capacity. The Chandler addition will mark Intel's sixth 300-millimeter plant.

Forty-five nanometer technology is two generations ahead of the current 90-nanometer (search) technology now in mainstream use among major chipmakers worldwide and 65-nanometer technology, which Intel plans to begin using later this year.

In a conference call with reporters, Baker declined to comment on whether Intel was looking at a new Israeli plant.

"We aren't making an announcement in Israel today," Baker said. "We are certainly making a key announcement in Arizona today," he said.

Israeli government agencies said they have created an aid package worth up to $525 million to Intel to set up the plant.

Baker compared the Israeli plant rumor to speculation earlier this year that Intel might locate a chip assembly facility in India, a plan that has yet to materialize.

Political leaders around the world have a history of pre-announcing Intel factory investments that often turn out to be either premature or misguided.

The Israeli ministry said the grant would reduce the cost of the plant to Intel by some $500 million to around $3.5 billion.

The Chandler plant will hire 1,000 high-skilled, permanent workers. Intel will employ a total 10,000 staff in Chandler after the third facility is built. The company employs 91,000 people globally.

Chandler ranks as Intel's second-largest employment location after Hillsboro, Oregon, where the company's primary research group is located and Intel runs three fabrication plants.

In addition, Intel said it will invest $105 million to convert an existing inactive wafer fabrication plant in New Mexico for use as a temporary component test facility for the next two years, resulting in an additional 300 jobs.)