UPDATE 2-Silicon Box picks Italy's Piedmont region for $3.4 bln chip plant

(Adds details on funding and talks with the EU from paragraph 7-10)

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, 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.

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)