WASHINGTON (Reuters) - The U.S. Commerce Department said Monday it would award Taiwan Semiconductor Manufacturing Co's ( TSM ) U.S. unit a $6.6 billion subsidy for advanced semiconductor production in Phoenix, Arizona and up to $5 billion in low-cost government loans.

TSMC agreed to expand its planned investment by $25 billion to $65 billion and to add a third Arizona fab by 2030, Commerce said in announcing the preliminary award. The Taiwanese company will produce the world's most advanced 2 nanometer technology at its second Arizona fab expected to begin production in 2028, the department said.

"These are the chips that underpin all artificial intelligence, and they are the chips that are necessary components for the technologies that we need to underpin our economy, but frankly, a 21st century military and national security apparatus," Commerce Secretary Gina Raimondo said in a statement.

TSMC, the world's largest contract chipmaker and a major supplier to Apple ( AAPL ) and Nvidia ( NVDA ), had previously announced plans to invest $40 billion in Arizona. TSMC expects to begin high-volume production in its first U.S. fab there by the first half of 2025, Commerce said.

The $65 billion-plus investment by TSMC is the largest foreign direct investment in a completely new project in U.S. history, the department said.

Congress in 2022 approved the Chips and Science Act to boost domestic semiconductor output with $52.7 billion in research and manufacturing subsidies. Lawmakers also approved $75 billion in government loan authority.

TSMC Arizona has also committed to support the development of advanced packaging capabilities through partners in the U.S. to allow customers to purchase advanced chips that are made entirely on U.S. soil, the department said, adding 70% of TSMC customers were U.S. companies.

TSMC CEO C.C. Wei said the company would help U.S. tech firms "unleash their innovations by increasing capacity for leading-edge technology through TSMC Arizona."

Commerce expects the projects will create 6,000 direct manufacturing jobs and 20,000 construction jobs. The department said 14 direct TSMC suppliers plan to construct or expand U.S. plants.

At full capacity, TSMC's three fabs in Arizona will manufacture tens of millions of leading-edge chips in 5G/6G smartphones, autonomous vehicles, and AI data center servers, the department said.

Through its Arizona fabs, TSMC will support key customers like Apple ( AAPL ), Nvidia ( NVDA ), Advanced Micro Devices ( AMD ) and Qualcomm ( QCOM ) "by addressing their leading-edge capacity demand, mitigating supply chain concerns, and enabling them to compete effectively in the ongoing digital transformation era," the department added.

Commerce last month announced $8.5 billion in grants and up to $11 billion in loans for Intel ( INTC ) to subsidize leading-edge chip production from the same program.

The department is expected to unveil an award for South Korea's Samsung Electronics ( SSNLF ) as soon as next week, sources said. Commerce declined to comment. Samsung did not respond immediately to a request for comment.