The news also stoked fresh tensions in Scholz's uneasy ruling coalition, with a row breaking out over what should be done with around 10 billion euros ($11 billion) in subsidies earmarked for the project.

The government "takes note of the announcement about the delay with disappointment and continues to believe the project is worthwhile and deserves support", said Scholz.

The chancellor welcomed the fact that Intel had indicated it wants to "stick with" the project in the long term.

Intel announced Monday that it was postponing the project in the eastern German city of Magdeburg, along with another one in Poland, by around two years due to lower expected demand.

The chip-making giant announced plans for the German plant in 2022, in what was seen as a major boost for EU efforts to ramp up semiconductor production in the bloc.

Construction work on the Intel project was due to begin in 2023 but it stalled after the Ukraine war sent inflation soaring.

German officials and the company were then locked in talks on financing for months, but the two sides finally signed a deal in June 2023, which included higher government subsidies for the 30-billion-euro project.

Since, Intel has reported disappointing results and announced major job cuts as it faces fierce competition, particularly from Nvidia, in the race to make cutting-edge chips for artificial intelligence.

Despite the setback for Germany, Scholz stressed there were still over 30 semiconductor projects underway in Germany. Other chip giants, including Taiwan's TSMC, have announced major investments in Germany.

"For the sake of our sovereignty, and for our technological leadership, we will continue to insist that semiconductor production takes place in Europe and especially in Germany," he said during a visit to Kazakh capital Astana.

He refused to be drawn on what should be done with the public funds that had been set aside for the Intel plant.

But shortly after Intel's announcement, Finance Minister Christian Linder from the pro-business FDP party said the money should be used to plug holes in the budget.

"Anything else would not be responsible policy," he wrote on X.

But sources from the economy ministry, which is headed by the Green party, the third member of the coalition led by Social Democrat Scholz, said the money should remain in a special "climate and transformation fund", and could not be used in the main budget.

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