China has approved plans by Intel, the US semiconductor company, to build a $2.5bn advanced chip fabrication plant in the north-eastern city of Dalian.

The planned plant would be a breakthrough for China's efforts to build a strong semiconductor sector, but is likely to fuel concerns in the US about the transfer of strategic manufacturing technology to a potential economic and military rival.

Intel, which makes most of its chips in the US with manufacturing outposts in Ireland and Israel, has repeatedly declined to comment on its plans for the plant in Dalian, which were reported by the FT in January.

However, Beijing's powerful National Development and Reform Commission on Tuesday said it had given the US company approval to build a wholly-owned plant in the port city that would produce chipsets for computer central processing units, or CPUs.

The plant would be able to produce chipsets with details as fine as 90 nanometres across on 300mm silicon wafers, the NDRC said.

Chipsets are key components in computers and other electronic devices that act as nervous systems channelling data between CPUs and other chips.

The NDRC gave no further details, but its statement suggests Intel does not yet plan to produce its flagship CPUs – the "brains" inside most of the world's personal computers – in China.

The prospect of the world's biggest chipmaker shifting some of its output to China will add to the worries of those in Washington who fear Beijing's communist government is successfully narrowing the US's lead in strategic information technologies.

China's status as a key link in the global IT manufacturing chain and its growing domestic market have encouraged leading technology companies to expand operations in the country, both to cut costs and to win the favour of Beijing authorities.

The Dalian plant would considerably increase Intel's commitment to China, where it has already invested $1.3bn and employs 7,000 local staff.

Intel already has relatively low-tech chip assembly and test facilities in Shanghai and the western city of Chengdu. China's leading chipmakers are all foreign-owned but no company with Intel's global presence has previously made the country a manufacturing base.

The Dalian plant is likely to be Intel's biggest single investment in Asia, a region that represents the fastest growing and largest geographic segment for the company.