Monday's announcement comes two weeks after the Chinese government let Intel's secret slip by announcing that it had approved construction.
"Our goal in China is to support a transition from 'manufactured in China' to 'innovated in China"
Intel president and CEO
Paul Otellini, Intel's president and chief executive officer, said on Monday the new factory will produce chipsets - a key component in personal computers, mobile phones and other products - for Chinese customers.
Speaking at a news conference in Beijing's Great Hall of the People, Otellini said the move would pave the way for a bigger US presence in the booming Chinese market.
"China is our fastest-growing major market and we believe it's critical that we invest in markets that will provide for future growth to better serve our customers," he said.
"Our goal in China is to support a transition from 'manufactured in China' to 'innovated in China.'"
Otellini said the factory, known as Fab 68, would bring Intel's total investment in China to just under $4bn, making it one of the largest foreign investors in the country.
Construction on Fab 68 is scheduled to begin later this year with production projected to begin in the first half of 2010, the statement said.
The Dalian plant is to produce chips using 90-nanometer technology, which refers to circuits 90 billionths of a metre wide.
That is not the industry's highest standard, but Intel said it believed that it would not be able to obtain a US licence to export more advanced technology to China.