* Among first contracts for zone announced last year

* Contractors include Saudi Binladin despite corruption probe

* Banks offering finance, project cost unclear

* No major, concrete business investments announced yet

By Marwa Rashad

RIYADH, Feb 8 (Reuters) - The Saudi Arabian government has begun to award contracts for the development of a huge business zone in the northwest of the country, asking local construction companies to build five palaces there, sources close to the matter told Reuters.

Crown Prince Mohammed bin Salman announced plans for the 26,500 square km (10,230 square mile) zone, known as NEOM, at an international investment conference in Riyadh last October. Officials said public and private investment in the area was eventually expected to total $500 billion.

The palaces for the king, crown prince and other senior royals, to be located on the Red Sea coast about 150 kilometres (95 miles) west of the city of Tabuk, are among the first contracts awarded for NEOM, said the sources who declined to be named as an official announcement has not yet been made.

The government’s Center for International Communications and NEOM’s management team did not immediately respond to requests for comment.

Saudi Binladin Group, the country’s biggest construction firm, has been mandated to build one of the palaces in a sign that it retains the government’s support despite the recent detention of some of its owners in a crackdown on corruption, the sources said.

Binladin chairman Bakr Bin Laden and several family members were held alongside scores of princes, senior officials and businessmen in the purge, which was announced in November.

Last month, Binladin said some owners of the firm might transfer part of their stakes to the state in a financial settlement of allegations against them, and most or all of the family members have now been released. A Binladin spokesman could not be reached for comment.

Banks have started offering financing facilities to builders of the palaces, one source said. The sources said they could not confirm the cost of the buildings.

A project design document seen by Reuters showed opulent buildings with modern and traditional Moroccan-style architecture featuring Islamic designs and colourful ceramic tiles. The complex of palaces will include helipads, a marina and a golf course.

NEOM, with its own judicial system and legislation designed to attract international investors, is to focus on industries such as energy and water, biotechnology, food, advanced manufacturing and tourism, according to officials.

Some companies, including Japan’s Softbank, have said they are prepared to invest in NEOM, but major, concrete business investments have not yet been announced. (Additional reporting by Stephen Kalin; Editing by Andrew Torchia and Matthew Mpoke Bigg)