The company said it plans to begin constructing the plant at its Mie semiconductor complex in western Japan for a total investment of 160 billion yen (1.5 billion dollars) in the next three years.
The factory would use large diametre 300-millimetre wafers to mass-produce advanced chips with 90 nanometer-wide circuits initially and eventually produce with the next-generation 65-nanometre circuitry, Fujitsu said.
The chips are much smaller but more capable than those with 130-nanometre technology widely used at the moment. A nanometer is one-billionth of a meter (3.3 feet).
"We aim to yield profits by making intensive investment in 300-millimetre wafers and achieving high cost competitiveness," said Toshihiko Ono, senior vice president who heads up Fujitsu's electronic devices business.
The plant will also be the world's first semiconductor factory equipped with micro-vibration control and resistance to earthquakes.
"Our customers are increasingly concerned about locating a factory in (quake-prone) Japan," Ono told a news conference.
Commercial shipments of chips from the factory will start in September 2005, with monthly turnout expected to reach a maximum 13,000 silicon wafers in 2006, he said.
The factory will likely start processing wafers with 60-nanometre technology in late 2006 but production levels is expected to be below 1,000 wafers a month, he said.
Initial investment through March 2006 will come to 75 billion yen, including 30 billion yen by four business partners, Fujitsu Ltd. said.