The news comes as Israel is locked in a brutal war on the Gaza Strip which has sparked global calls to boycott the country.

Israel's deal with Intel is a huge boost by a big US company and a sweet deal for the Israeli government at a time when Washington has been piling on pressure on Tel Aviv to stop killing quite so many civilians in Gaza.

On top of the 12.8 per cent grant, the chipmaker also promised to buy $16.6 billion worth of kit and and services from Israeli suppliers over the next decade and new plant is expected to create thousands of jobs.

Intel runs four development and production sites in Israel, including a factory in Kiryat Gat, 26 miles from the Gaza Strip.

A plan to make the Kiryat Gat site bigger is an "important part of Intel's efforts to make a more resilient global supply chain, alongside the company's ongoing and planned factory investments in Europe and the United States", Intel said in a statement.

The plant makes Intel 7 technology, or 10-nanometer chips, and employs nearly 12,000 people in the country while indirectly employing another 42,000 more.

Intel first set up shop in Israel in 1974. At some $9 billion, Intel's exports make up 5.5 percent of total high-tech exports.