Mahathir said the revolutionary miniature chip, developed by Japan's FEC Inc., could be combined with current technology to "greatly prevent the possibilities of terrorist acts" as well as banknote and document counterfeiting.

"With the need for greater security at airports and other transport terminals the current security level provided by available systems is insufficient," Mahathir said.

"The application is almost unlimited," he told a news conference after annual talks with global hi-tech chiefs at this town in Malaysia's Multimedia Super Corridor MSC), an enclave south of the capital Kuala Lumpur modeled after California's Silicon Valley.

"We think this is a great breakthrough for Malaysia. It is the first in the world. No other people have come up with such a tiny microchip, particularly as it also has a built-in antenna."

The veteran premier declined to reveal the cost for the project, dubbed MM or Malaysian Microchip.

"I think it is reasonably priced," he said, adding in jest that the acronym MM did not stand for Mahathir Mohamad.

Mahathir said the project, in which Malaysia would establish the chip applications and network, would spur new economic initatives and accelerate the country's goal of becoming a developed nation by 2020.

Measuring 0.5 of a square milimeter and produced at less than 0.38 ringgit (10 cents) each, the chip -- the size of a dot -- uses the radio frequency identification (RFID) chip technoloy.

Mahathir said the chip would initially be manufactured in Japan early next year but production would eventually be shifted to a factory in Malaysia's northern Kedah state belonging to state-owned wafer fabrication firm Silterra (M) Sdn. Bhd.

He said Japanese companies would still be involved in the project, in the transfer of technological know-how, but the proprietary right would belong to Malaysia.

FEC (M) Sdn. Bhd. chief executive Kunioki Ichioka told reporters that the chip can also be inserted into the human body, animals, bullets, credit cards and other items for verification purposes, and can replace price bar codes used to tag products.

He said the Silterra factory has sufficient facilites to produce the chip but it may take a year to make preparations.

Earlier, he was quoted by the Malay-language Utusan Malaysia as saying that the chip would cut the production cost of Malaysia's national "smart identity card" from seven ringgit to one ringgit.

The smart card, the world's first for citizens, launched two years ago, wraps passport, identification, driver's license, medical and other personal details in a piece of plastic the size of a credit card.

The project is seen as another feather in the cap for the 77-year-old Mahathir before his retirement in October after 22 years in power.

The premier launched the MSC in 1996, and it now houses 887 technology firms, 29 institutions of higher learning and nine incubator companies.

Deputy Prime Minister Abdullah Ahmad Badawi, who will takeover from Mahathir, earlier this week said the MSC had achieved much success.

He said a total of 21,102 jobs were expected to be created within the MSC this year, up almost ten-fold from 2,190 jobs on offer in 1997.

Total revenue of MSC firms is expected to surge from 3.93 billion ringgit in 2002 to an estimated 5.83 billion ringgit this year, and 7.98 billion in 2004, he said.

Mahathir previously said the hub had not contributed to the economy as much as he expected. Critics have complained of a lack of focus, excessive bureacratic red-tape and a shortage of skilled labour.

But investment in the MSC has recently picked up pace with British banking group HSBC and Sweden's telecoms firm Ericsson launching regional centres in the zone in July.

SPACE.WIRE