TEL AVIV, June 1 (Reuters) - Intel Corp INTC.O is interested in building another chip manufacturing plant in southern Israel by 2012 at a cost of $2.5 billion, the Yedioth Ahronoth newspaper reported on Monday.

A spokesman for Intel in Israel declined to comment.

The newspaper said Intel executives had been holding meetings with Israeli government officials to determine whether the company would be eligible to receive grants for the plant.

Intel’s $3.5 billion Fab 28 plant in the southern Israeli town of Kiryat Gat started mass production in February of 45 nanometre-wide processors. It will reach full production capacity by the end of the year.

Intel received a state grant of $525 million for Fab 28.

Late last year Intel closed its Fab 8 plant in Jerusalem and transferred Fab 18, also in Kiryat Gat, to Numonyx, a flash memory joint venture that Intel owns with STMicroelectronics STM.PA and Francisco Partners.

It is converting Fab 8 into a die preparation plant.

Intel, which also has four research and development centres in Israel, is one of the country’s top exporters, with exports of $1.39 billion in 2008. (Reporting by Tova Cohen, editing by Will Waterman)