Nov 24 (Reuters) - The U.S. government plans to reduce

Intel Corp's ( INTC ) preliminary $8.5 billion federal chips

grant to less than $8 billion, the New York Times reported on

Sunday citing unnamed sources.

The change took into account a $3 billion contract Intel ( INTC ) had

been offered to make chips for the Pentagon, the people told the

Times.

This spring U.S. President Joe Biden's administration said

it was awarding Intel ( INTC ) nearly $20 billion in grants and loans,

supercharging the company's domestic semiconductor chip output

and marking the government's largest outlay to subsidize

leading-edge chip production.

The U.S. announced a preliminary agreement for $8.5 billion

in grants and up to $11 billion in loans for Intel ( INTC ) in Arizona,

with some of the funding to be used to build two new factories

and modernize an existing one.

The outlay was part of the 2022 CHIPS and Science Act, a bid

to boost domestic semiconductor output with $52.7 billion in

funding, including $39 billion in subsidies for semiconductor

production and $11 billion for research and development.