(Reuters) - The U.S. government plans to reduce Intel Corp's 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 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 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 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.