TOKYO (Reuters) - Japan is finalizing a plan that will tighten scrutiny of foreign investment in 12 key sectors, four government sources with knowledge of the matter told Reuters.

The industries would include sectors like defense, nuclear power, aerospace, utilities, gas, cyber security and telecommunications, two of the sources said, confirming a report by the Nikkei newspaper.

Under the plan, foreign investors purchasing a stake of 1% or more in certain Japanese companies will be subject to pre-screening, as against 10% now.

About 400 to 500 listed Japanese companies will fall under this criteria. The government plans to publish the list of the firms in April, one of the sources said.

Tokyo passed through parliament a change in law that would tighten reporting requirements for foreign investment in sectors related to national security, a move that reflects concern China could gain access to key confidential technology.

Finance Minister Taro Aso said on Friday the law revision - which is expected to take effect in May before mid-year shareholders’ meetings, was aimed at boosting direct investment in Japan and responding to concerns about national security.

“As a result, it should encourage Japan-bound investment rather than discouraging it,” Aso told reporters after a cabinet meeting.

The move followed similar steps taken by the United States and Europe in recent years to allow greater scrutiny of ownership in industries deemed as critical to national security.

Under a draft of the changes under consideration, the government will target 12 sectors for which foreign investors must get pre-approval for holding a stake of 1% or more in a company, as against 10% now, the finance ministry said.

To avoid discouraging foreign investors from investing in Japanese stocks, the government will grant exemptions on pre-reporting requirements for overseas investors who meet a set of criteria, the ministry said.