It is Mr Mittal's first venture in India

The company's Indian-born chairman, Lakshmi Mittal, says he will invest more than 300bn rupees ($6.5bn) in the plant in eastern Orissa state.

The steel plant will be Mr Mittal's first in his native country.

Earlier this month, Mittal Steel finally won approval for a $32.5bn deal to acquire European steel company Arcelor, creating a global steel giant.

The project will bring more revenue to the state Naveen Patnaik Orissa chief minister

Reports said he had dropped an earlier plan to build the steel plant in the neighbouring state of Jharkhand.

The deal was announced in the Orissa state capital Bhubaneswar, after talks between Mr Mittal and chief minister Naveen Patnaik.

"The focus areas for us would be India and China to [help] continue Mittal-Arcelor to be the largest steel producer of the world," Mr Mittal was quoted telling reporters by Reuters news agency.

India's demand for steel is growing rapidly as strong economic growth has increased demand for automobiles and building materials.

Big investment

Orissa is one of India's mineral rich states and South Korean steel giant Posco is also planning a $12bn plant there.

"We will extend all our support for the investment," the state's chief minister told journalists.

"The project will bring more revenue to the state exchequer and more employment opportunity to the people in the state," the Associated Press quotes Mr Patnaik as saying.

But correspondents say the project may run into trouble with local tribal communities and politicians who could oppose the handing over of the state's iron ore mines to Mittal Steel.

Mr Mittal is now back in the Indian capital Delhi where he is due to meet senior government officials including Prime Minister Manmohan Singh.