ROME, June 28 (Reuters) - Singapore-based semiconductor

firm Silicon Box has picked the town of Novara, in the

industrialised northwestern region of Piedmont, for its new

multi-billion-euro chip factory in Italy, the industry ministry

said on Friday.

The three-year-old startup, created by the founders of U.S

chipmaker Marvell ( MRVL ), will invest 3.2 billion euros ($3.42

billion) to produce in Italy so-called "chiplets", which can be

the size of a grain of sand, under a government-backed deal.

Chiplets are brought together in a process called advanced

packaging, a cost-efficient way to bind small semiconductors to

form one processor that can power everything from data centres

to household appliances.

"Silicon Box offers Piedmont the opportunity to become a

semiconductor hub," Industry Minister Adolfo Urso told

reporters.

The project is part of long-standing Italian efforts to

attract investment from technology companies, including a

shelved deal with U.S. chipmaker Intel ( INTC ).

At full capacity, the investment is expected to create 1,600

new jobs, in addition to the indirect jobs generated both for

the construction of the facility and in the wider supply and

logistics ecosystem involved.

The government is in talks with European Union authorities

to fund part of the overall 3.2-billion-euro investment with

public money and offer favourable terms to Silicon Box, Urso

said, adding the state contribution would be lower than 40% of

the total.

Italy has set aside almost 5 billion euros in state help to

attract foreign chipmakers.

Under the EU Chips Act, public money is provided largely by

national governments while the vetting of projects takes place

in Brussels.

French-Italian company STMicroelectronics last

month won EU approval for a 5-billion-euro silicon carbide plant

being built in Italy.

($1 = 0.9352 euros)

(Reporting by Giuseppe Fonte, editing by Giulia Segreti, Tomasz

Janowski and Emelia Sithole-Matarise)