Interfax said the new entity will be registered in the city of Yuzhno-Sakhalinsk on the Russian Pacific island of Sakhalin. The Sakhalin-2 LNG plant is located 60 km (37 miles) south of Yuzhno-Sakhalinsk.

Japanese trading houses Mitsui & Co and Mitsubishi Corp on Tuesday cut the value of their stakes in the Sakhalin-2 LNG project by 217.7 billion yen ($1.62 billion) after Moscow's move to seize control of it.

Western countries and their allies, including Japan, imposed tough sanctions on Russia after it sent troops into Ukraine in late February. Moscow retaliated by putting obstacles on western businesses and investors leaving Russia, including in some rare cases by seizing assets.

Interfax reported that Gazprom will get just over a 50% stake and the remaining 49.99% will be held by the new company itself until after existing Sakhalin-2 shareholders apply for a stake which they should do within a month.

If foreign shareholders, which also include Royal Dutch Shell with a 27.5% stake, do not apply for a share in the new entity, it will be evaluated and sold by the government to a Russian entity, Interfax said, citing an Aug. 2 decree.

($1 = 134.0900 yen)

(Reporting by Reuters; Editing by David Goodman and Alexander Smith)